Earnings 2% below estimates: ITC reported F3Q16 results, with revenue, operating profit and adjusted net profit of R91 bn, R36 bn and R26.5 bn, respectively, vs. our estimates of Rs 94.6 bn, Rs 37.4 bn and Rs 27.2 bn. Cigarette volumes declined 5% y-o-y (vs. our estimate of 6-7% decline). However cigarette price growth for the quarter was lower—ITC did not take price hikes in its key brands in Tamil Nadu and Kerala after the Union Budget. This is the key reason for cigarette revenue growth of 5.7%, marginally lower than our estimate of 6.5%.
Overall operating profit growth for F3Q16 was 4.1% (vs. MSe of 8%), led by the cigarette segment, which reported growth of 3.4% (vs. our estimate of 8%). The miss was entirely due to phasing impact of certain costs like production expenses and channel spending during the quarter.
(i) Paper and Packaging revenue growth was 5.1%, in line with our forecast. Operating profit growth of 13% growth (vs. 3% MSe) was driven by product mix improvement and lower input costs.
(ii) Hotels reported revenue growth of 4.5% (vs. our +12% estimate) with operating profit decline of 10% (vs. Mse +13.4%).
(iii) Non-tobacco FMCG revenues grew 7% y-o-y (vs. MSe 9%), impacted by weak demand primarily in rural markets coupled with a deflationary pricing environment. The segment reported an operating profit of R188m for the quarter (vs. our estimate of R126m Ebit).
(iv) Agri business revenue declined 7.3% y-o-y, while Ebit declined 3.1%. The business was affected by the lack of export opportunities given adverse currency movement vs. other exporting nations.