ITC Ltd posts highest-ever quarterly profit in July-Sept quarter

ITC Ltd posted its highest ever quarterly profit for the three months ending September 2019, with standalone net profit growing by a record 36.2% at Rs 4023.1 crore due to fall in tax expenses and tax credit.
The cigarette-FMCG-hotel major’s gross revenue for the quarter grew by 5.9% at Rs 11,750.16 crore driven mainly by paperboards, hotels and the non-cigarette FMCG business. The result exceeded street estimates for net profit, though was in line for revenue and cigarette volume growth. Analysts estimate the company's cigarette sales volume grew by about 3-4% in the quarter.

The surge in net profit was both due to reduction in corporate tax rate and higher depreciation which came in as additional tax benefits for the large investment the conglomerate has been making towards its manufacturing units and hotels under the Make in India initiative. The company said tax expenses for the current quarter and six months ofthe fiscal includes a credit of Rs 340 crore.

ITC said it exercised the option permitted under Section 115BAA of the Income-tax Act, 1961, whereby the deferred tax liabilities (net) as at 31st March, 2019 (arising mainly on account of the company's continued focus on 'make in India' investments) and the estimate of tax expense for the year ending 31st March, 2020 have been re-measured. It said the resultant impact was accounted in the current quarter and will be done in the remaining quarters of the financial year.

In the release, ITC said there was a further deceleration in economic activity during the July-September quarter triggered by drop in consumption, especially in rural areas, severe crunch in market liquidity condition and flood in several parts of the country.

The company, however, feels the recent government initiatives 'augur well for the revival of the economy', while record rainfall and schemes to boost farmer income are "expected to support consumption demand going forward."

The ITC scrip on Thursday closed at Rs 248.95 down by 0.82% on Bombay Stock Exchange while the benchmark Sensex closed 0.1% lower. The results were declared after trading hours.

ITC’s cigarette business, which accounts for three out of four cigarettes sold legally in the country, posted 6% growth in gross revenue at Rs 5326.83 crore while the segment profit went up by 7.4% at Rs 3844.45 crore. The company said stability in cigarette taxes since the introduction of goods and services tax in July 2017 has provided some relief to the legal cigarette industry, though legal cigarette industry volume continues to remain below 2014 level.

The company’s biggest bet – the non-cigarette FMCG business comprising of packaged food, personal care, stationary products, agarbatti and safety matches – posted 4% growth in gross revenue at Rs 3288.31 crore led by atta, potato chips, premium cream biscuits, handwash, bodywash and notebooks. The earnings before interest, tax, depreciation and amortization (EBITDA) of the business is up 39% to Rs 221 crore.

In FMCG, ITC said categories with relatively higher rural salience were impacted the most. It said it is trying to mitigate the impact of slowdown through measures such as enhancing direct reach, increasing frequency of market servicing, introducing targeted offers for value seeking consumers, investing in fast growing channels such as modern trade and e-commerce, and extending credit to select trade partners.

ITC, which is the second largest hotel chain in India, reported 17.7% growth in gross revenue at Rs 426.63 crore driven by new properties. The company said the sluggish demand environment contributed to relatively muted performance of the other properties.