Missing street expectations, cigarettes-to-hotel major ITC on Friday reported a marginal increase in its net profit to Rs 2,431.25 crore during the quarter ended September 30, from Rs 2,425.16 crore for the same period a year ago, on account of muted cigarettes business and sluggish demand in FMCG segment amid prolonged disruption in the instant noodles category.
The city-based conglomerate’s net sales recoded 1.41% year-on-year decline at Rs 8,804.70 crore in the September quarter as against Rs 8,930.32 crore during the corresponding period last fiscal, according to a BSE filing.
ITC, the country’s biggest cigarette maker, said its cigarettes business continued to be impacted by unprecedented pressure on legal cigarette industry volumes. “The performance of the cigarettes business remained muted during the quarter due to taxation and regulatory headwinds facing the legal cigarette industry in India. The operating environment for the legal cigarette industry in India was rendered even more challenging with two rounds of sharp increase in Excise Duty – in July 2014 and February 2015,” it said in a statement.
The company’s cigarette segment revenue grew only 1.56% y-o-y at Rs 4317.18 crore during July-September period of FY16. Analysts said during the quarter its cigarette volume could fall by a higher rate.
“Over the last three and a half years, the incidence of excise duty and VAT on cigarettes, at a per unit level, has gone up cumulatively by 98% and 124% respectively which is exerting severe pressure on legal industry volumes even as illegal trade grows unabated,” the company pointed out.
The company’s FMCG-Others segment posted a revenue growth of 7.1% amidst a sluggish demand environment and prolonged disruption in the instant noodles category.
The company said while most categories under FMCG-Others segment witnessed expansion in gross margin driven by product mix enrichment and stable input costs, segment results were impacted due to gestation costs of new categories such as juices, gums and dairy and higher brand investments to reassure consumers on the quality and safety of YiPPee! Noodles.
“In the instant noodles category, regulatory issues largely pertaining to a competitor’s products impacted performance during the quarter. The business launched a focused and integrated 360 degree communication campaign to reassure consumers on the quality and safety of YiPPee! Noodles. This intervention has aided a smart recovery in the consumer franchise of YiPPee! Noodles in recent weeks,” it added.
Revenue from the conglomerate’s hotel business grew by close to 11% to Rs 290.04 crore from Rs 261.59 crore in the same period of last fiscal due to improvement in room occupancy and growth in the food and beverage segment.