Non-cigarette FMCG biz, margins boost ITC profit: Sharekhan

As ITC beats estimates to post a year-on-year increase of 26% in its net profit for the fourth quarter at Rs 1,614 crore, Sharekhan's FMCG analyst Kaustubh Pawaskar, explains to CNBC-TV18, that it was higher-than-expected other income that triggered growth in the company's bottom-line.

Pawaskar also points out the key highlights of the 23%-increase in the non-cigarette FMCG business and improvement of the margins of the cigarette business by 233 bps to 31%.
The analyst voices concerns about rising other income driving the company's growth but advises investors to enter the stock on positive performance and a strong balance-sheet.
Providing a different perspective, Sanjay Manyal, research analyst, ICICI Direct adds that ITC could sustain margins without increase prices if it is able to enter the below-65 mm segment specifically created by the Budget has that category.
What is also to be understood , he adds, is how the company will be able to tap the segment. Below is an edited transcript of the interview on CNBC-TV18. Also watch the accompanying video. Q: What have you made of the initial results and the segments in particular?
A: The results have beaten expectations and largely on account of higher-than-expected other income that triggered the bottom-line which grew by around 25%.
In terms of business perspectives, the key highlight for this quarter is the performance of the non-cigarette FMCG business which grew by 23% and the losses have come down significantly, by around 75% year-on-year.
Another key highlight is that the margins of the cigarette business improved by around 233 bps to 31%. So overall, the performance of the company looks good and its hotel business did well during the quarter despite the bleak environment. Q: What are the negatives for ITC this time around?
A: I don't see any negative except that the bottom-line growth is largely driven by higher other income.
Q: But that was there last quarter as well?
A: Yes, it was expected. From a longer-term perspective, the stock looks good and if it corrects from here, investors could try and enter the stock. Q: How do you think ITC has possibly performed on the volume and pricing front for cigarettes?
A: The gross revenues of the cigarette segment grew by 11%, so growth in volume would be around 4-5% and rest would be on price-related growth. That's my assumption. Q: What would your call be on ITC at this point?
A: We would be reviewing our estimates after interacting with management. But on a longer-term perspective, the stock looks good on back of its earnings visibility and strong balance sheet. In the current environment, I believe that companies with a strong balance sheet should be looked at.