ITC’s third quarter performance shows the Cigarettes major are doing well in all its key businesses. The Cigarettes business continues to be the mainstay, growing by 13.8% and contributing to 66% of revenues, benefiting from the robust economic growth.
The Cigarettes’ segment profit grew much higher than sales, up 19.5% reflecting price hikes and a better product mix. A double-digit growth from the Cigarettes is a very healthy sign for ITC. That gives it that much leeway to put money into its non-Cigarettes FMCG business, which is growing rapidly.
However, even as sales grew 67.5%, its loss expanded to Rs 46.5 crore from Rs 39.5 crore in the previous corresponding period. The plus point is that the increase in losses is much lower than the growth in turnover. Still, the FMCG segment margins increased by 100 basis points, due to the cigarette business.
The next large operating business is the paperboard business, which did moderately, as sales grew 11%, while segment profit rose 14%. This business also gained from higher paper prices. But the star of the quarter was the hotels business, which is cashing in on an unprecedented windfall for hotel companies.
Revenues grew 28% and profits 54%, as its hotels in prime locations across the country benefited from rising average room rates. If operating margins during the quarter were flat compaRed to the same period last year, it’s largely due to the agri-business. It now contributes to about 15% of sales, is growing rapidly, but delivers very low margins since it is a trading activity.
ITC is More comfortably placed compaRed to other FMCG majors as it is gaining from growing disposable incomes, yet is in a better position to pass on cost hikes. This is already reflected in its valuation, but a 33% gain in its net profit has seen the stock perk up a bit.