Smoke Signals

Updated: Jan 21 2003, 05:30am hrs
ITC is one of the few FMCG stocks that have defied the downslide with a robust growth in sales and profits during the quarter to December 2002. Cigarette business continues to be its mainstay as it contributes nearly 74 per cent to topline and 90 per cent to bottomline. The company has tried to slash its dependence on cigarette as a major revenue spinner but with little success. Net turnover rose 12.2 per cent to Rs 1,467.6 crore on the back of 5.7 per cent growth of cigarette business.

Profitability of cigarette and paperboards businesses improved to 21.7 per cent (20.8 per cent) and 22.1 per cent (16.3 per cent), respectively. Higher share of value-added products in total paperboard sales at 43 per cent aided improvement of profitability. A turnaround in hotel business is significant in view of the impact of the slump in international travel, adverse effect of travel advisories and holding costs in respect of Searock Sheraton hotel as a result of a prolonged legal dispute. The bottomline grew by 21.8 per cent to Rs 323.5 crore would have risen higher still but for soaring losses of other miscellaneous businesses such as branded garments, greeting cards, packaged foods and matchsticks of Rs 30.9 crore (Rs 18.3 crore). ITCs performance has to be viewed in the context of a few factors. The companys cigarette business has been adversely affected mainly due to the increase in excise duties and smuggled cigarettes. A ban on smoking in public places and anti-smoking campaign has exacerbated it. Therefore, the company has decided to diversify its revenue stream with a better focus on hotels and paper segments besides venturing into new businesses such as branded garments, greeting cards, packaged foods and matchsticks. However, while the hotel segment suffers from a very long gestation period, the other new businesses need heavy promotional expenditure in the initial period. Moreover, the hotel business is highly capital intensive as can be seen from the fact that ITC has invested Rs 176 crore in the business during the quarter under review. Such investment reduces free flow of cash available for dividend distribution.

Glenmark Pharmaceuticals
Glenmarks net sales during the quarter to December 2002 grew 16 per cent to Rs 69 crore on the back of new introductions and acquisition of Glaxos Ankleshwar plant. Export of formulations rose 29 per cent to Rs 8.25 crore. Domestic formulation sales also grew by 11 per cent in line with the industry average growth.

Operating profit rose seven per cent to Rs 15 crore but margins fell slightly from 23.8 per cent to 22 per cent owing to higher spending on promotional efforts and R&D expenses. Net profit increased by 65.5 per cent to Rs nine crore.

Glenmark has acquired Glaxos bulk drug plant at Ankleshwar for Rs 14 crore. That should enable the company to have backward integration. The unit manufactures bulk drugs such as ranitidine, griseofulvin, salbutamol and cephalexin. The plant has approvals from various international certification agencies. The API business at Ankleshwar facility will also help the company to enter into regulated markets in the West. Five new products have been identified for the regulated markets to be manufactured at Ankleshwar.

Manish Joshi DhruvRathi