As the stock market takes on its roller-coaster ride, volatility is expected to rise, especially before the Budget. All eyes are typically trained on the cigarette manufacturers who are expected to see a rise in the indirect taxes almost every year. The expectations are the same for ITC this time as well. However, a hike of 5-10%, as is expected, would not dent the cigarette volumes in the upcoming, thanks to the relative price inelasticity to price hikes. And in case the GST, implementation comes next year, this could imply a higher tax rate of 14-16%. Currently, blended VAT for cigarettes for ITC is 14%, whichwould also not create a high impact, reckon analysts. Overall, cigarette volumes grew at a strong pace of around 7% in the December quarter, above Street estimates of around 4-5%. Volume growth in the non-cigarette segment was also steady, expect for the hotels business. The agri-business and paperboards posted a strong growth of 46% and 26%, respectively, over the same quarter of the previous year. And during the same period, the non-cigarette FMCG business registered a growth by 23.5%. It was the ITC?s hotel business that lagged other businesses and posted a marginal 2% revenue decline. On the margins front, ITC saw an expansion of 133 basis points over the same period of the previous year to touch 36.6% owing to better cost control and the strong revenue growth. And the profitability of the agri-business and the paperboards segment caused the net earnings to 26.7% over the previous year to touch Rs1,144 crore in the latest quarter. Over the years, ITC has invested in developing its non-cigarette FMCG business and the paper segment also. The company has invested around 35% of its incremental capital employed, in the past five years, in the agri and paper businesses. And these businesses are expected to now start making profits and share the profitability burden from the cigarette business.
In the December 2009 quarter impressive performance from the branded packaged food and the stationary business saw the company?s non-cigarette FMCG business registered a growth of 23.5% over the previous year to touch Rs891.8crore. Importantly, losses in the businesses have moderated to Rs86 crore in December 2009 from Rs127 crore in the previous year.
