ITC net rises 18% in line with forecast but revenue disappoints

[caption id=“attachment_985395” align=“alignleft” width=“380”] Reuters[/caption]

India’s largest cigarette maker, ITC, posted an 18 percent jump in quarterly net profit on Thursday, in line with market expectations.

ITC, India’s third most valuable company , said its net profit rose to Rs 1890 crore for the quarter ended June 30, up from Rs 1600 crore a year earlier.

The earnings before interest, taxes and depreciation stood at Rss 2,719 crore and the EBITDA margin was 37.1 percent.

However, net sales rose lower-than-expected 10 percent year-on-year to Rs 7,339 crore.

Analysts on average had expected the company to report a net profit of Rs 1,890 crore on revenue of Rs 7,800 crore, according to a CNBC-TV18 poll.

Its net cigarette business sales gained 7 percent to Rs 3,537 crore in the quarter, while other FMCG net sales grew 18 percent to Rs 1,745 crore, the FMCG major said in a statement.

ITC’s hotel business sales gained 8 percent to Rs 250 crore, while profits slumped 66 percent to Rs 9 crore. On the other hand, agri business sales rose 29 percent to Rs 2,189 crore and sales from paperboards, paper and packaging business were up 10 percent to Rs 1,163.14.

“ITC results were below expectations on the revenue front. However, higher cigarette margins led to a 240bp EBITDA margin expansion at 37.7 percent and led the 18 per cent PAT growth which was in line with expectations,“said IDFC in a note.

However Kotak was disappointed with the results.

“ITC’s revenues came in below our expectations, primarily on account of weaker sales growth in the cigarette and other FMCG segments. Net sales growth of cigarettes, at 7.1% (versus est. 10%), represent a 20-quarter low..Results show growing stress on demand, and pose a question mark on the extent of price inelasticity that cigarettes command. In this context, ITC’s valuations (which remain, after today’s correction, close to historical highs) are demanding. Growth of the company’s key segments has moderated significantly and likelihood of positive earnings surprises in the near-term is, in our assessment, low, we maintain a negative stance on the stock following the results,” saidRitwik Rai, FMCG Analyst, Kotak Securities .

Brokerage Edelweiss Financial put out these highlights:

Cigarettes volume declined 1-2%; net sales growth looks optically low because of ad valorem impact in Q1FY13; EBIT grew 18% YoY; margins expanded 124bps YoY. Net sales growth will recover in coming quarters.

FMCG others net sales grew 18.4%; posted negative EBIT of INR189mn; however margin expanded 154bps YoY; we expect it to be profitable in FY14E

Hotels sales grew 7.5% YoY; EBIT declined 65.9% YoY; margin declined 771bps YoY - full impact of costs of new Hotel at Chennai.

Agri sales grew 29.4% YoY; EBIT grew 16.3% YoY; Tobacco and wheat exports were main drivers.

Paperboard sales grew 9.9% YoY; EBIT declined 5% YoY; margin declined 311 bps YoY because of sharp inflation in wood which is main raw material.