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Tobacco and FMCG major ITC on Wednesday hiked prices of its premium cigarettes -- India Kings and Benson & Hedges -- in the range of 5-10%. While India Kings, priced at Rs 100, will now cost Rs 110, a pack of Benson & Hedges will come for Rs 105 against Rs 100 earlier.
An ITC spokesperson confirmed the hike but declined to give details.
Anand Shah, an analyst with Angel Broking, said the hike was partly to compensate for various regulatory issues and also because the company has seen earlier price hikes being absorbed without a dip in sales.
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The likely moderation in tobacco business growth and forays into less profitable categories are the primary reasons to exit the stock at these valuations.
Building a brand reputation in the personal products business may entail high spending.
Investors can consider booking profits in ITC shares, as the stock valuations (30 times trailing earnings, at Rs 254) seem to have outpaced the medium-term growth prospects. Forays into businesses less profitable than the core tobacco business and the likely moderation in growth rates for tobacco are the primary reasons for the recommendation.
The highlights of ITC's sterling set of numbers for the September 2009 quarter are the strong performance of the cigarettes and agri businesses and smaller losses from the non-cigarette FMCG segment.
Not surprisingly, the stock closed 5 per cent higher at Rs 260 on Friday, with operating profit margins rising by 620 basis points year-on-year, to just under 36 per cent, on revenues of Rs 4,293 crore, up 14 per cent year-on-year.
The strong profitability pushed up the operating profit by nearly 38 per cent to Rs 1,537 crore. The cigarettes business has been remarkably resilient despite the ban on smoking in public places, the hike in value-added taxes in several states and the modest price hikes taken by the company.
In fact, the ITC stock was re-rated a few months back since cigarette volumes were seen to be growing at a good clip of 4-5 per cent and industry watchers believed the momentum would sustain. Moreover, the management has indicated that non-cigarette FMCG losses would be brought down to Rs 400 crore this year; while ITC posted a loss of around Rs 100 crore in each of six consecutive quarters, the loss in the September 2009 quarter was Rs 85 crore.
Beating market expectations for the second consecutive quarter, ITC has logged a strong performance, thanks to its diversified business portfolio. The tobacco-to-FMCG major has registered a double-digit increase in net profit and revenues as well as a healthy expansion in profit margins.
Though the company is witnessing a subdued performance in its hotel business and its non-cigarette FMCG continues to bleed, the good show put up by its other businesses has more than compensated for any adverse impact on profits.
ITC has made significant savings on advertising & promotional costs, as is evident from the y-o-y drop in company’s other expenditure. It also made small savings on raw material costs. All this helped the operating profit margin to expand by more than 500 bps to 36.5%, while the net profit margin rose by nearly 250 bps to 23% during the September 2009 quarter.
ITC Ltd., India's largest cigarette maker by sales, Friday posted a 26% rise in second quarter net profit, helped by an overall strong performance in all its business operations, except hotels.
Net profit for the July-September period rose to 10.10 billion rupees ($217.5 million) from 8.03 billion rupees a year earlier.
Net sales increased 14% to 42.93 billion rupees from 37.63 billion rupees, helped by higher sales at its tobacco and non-tobacco consumer goods segments, agribusiness and paperboards business, the company said.
The results beat analysts' expectations, with a Dow Jones Newswires poll of 10 analysts expecting, on average, net profit of 9.12 billion rupees on revenue of 41.49 billion rupees.
Discriminatory taxes on cigarettes have not helped reduce the tobacco consumption in the country, says ITC divisional chief executive (tobacco division) Kurush Grant. In an exclusive chat with ET, he says that the move has only led some consumers moving to smuggled and tax evaded cigarettes:
What are your views on discriminatory taxes on cigarettes vis-a-vis other tobacco products?
Though cigarettes account for less than 15% of the total tobacco consumed in India, it contributes more than 90% of the total tax revenue collected from the tobacco industry. While the intent of the government has been to reduce the aggregate consumption of tobacco, extremely high tax rate on cigarettes has only served to squeezed demand for the cigarette form of tobacco, even as total consumption of tobacco in the country continues to grow. . . .
Q. Will implementation of GST impact the movement of smuggled contraband cigarettes which already enjoys an illegal advantage of tax arbitrage? Please elaborate.
KG: It will depend entirely on the manner in which GST is implemented on tobacco. A single point, first point specific excise duty subsuming all other taxes would certainly be the more revenue efficient methodology.
Driven by increase in the FMCG and the paper and packaging businesses, ITC Ltd on Thursday posted 17.4% rise in net profit in the first quarter of this fiscal at Rs 879 crore, even though growth in its overall revenues remained muted.
The company had a net profit of Rs 748.67 crore in the same period last year. The total income of the company during the period rose marginally by 5% to Rs 4220.4 crore from Rs 4014 crore in the same period last fiscal.
Pre-tax profits of the company rose by 18.3% to Rs 1,317 crore during the quarter, a company statement said. ITC said despite the tough economic conditions, FMCG and paper and packaging businesses grew in net revenues by 19% and 16% respectively.
* Profits up better cigarette prices and leaf tobacco exports
* Revenues affected by hotels and agri-business
* Increase in tax on cigarettes affected demand
Diversified business conglomerate ITC Ltd is planning to invest Rs 4,000-5,000 crore over the next five years in a new paper plant, provided it finds 1,500-2,000 acres in time.
ITC, 31.7 per cent owned by British American Tobacco, is India’s top cigarette maker and also makes consumer goods and runs the Welcome Group of hotels.
At a press conference in Kolkata today, Y C Deveshwar, chairman, ITC Ltd (pictured), said: “Acquiring adequate land for fresh investments and business expansion is a challenge in India. Nonetheless, we are looking at 1,500-2,000 acres in either of Gujarat, Madhya Pradesh and Andhra Pradesh. We intend to invest close to Rs 4,000-5,000 crore over the next five years in building a new greenfield paper plant, depending on how we scale up.”
The company currently has a 0.5 million tonne paper plant in which it invested Rs 3,000 crore.
“Our focus areas in the short term would be paper, hotels and non-cigarette FMCG businesses.
ITC today invited hotel rival EIH to explore future development jointly, after toying with the possibility of a hostile takeover of the Oberoi company for years.
Yogi C. Deveshwar, chairman of ITC, said the company was open to collaborating with other hotel companies, including EIH and Hotel Leelaventure. ITC has stakes in both the companies.
He ruled out a hostile takeover of EIH, in which it has a 14.98 per cent stake. Deveshwar said the investments in EIH and Hotel Leela had appreciated Rs 600-700 crore.
ITC Chairman, Mr Y C Deveshwar on Friday said the company would not exit its once bread and butter cigarette business, although it would continue diversifying into more new areas of business.
Replying to shareholders' queries at the 98th AGM of the company here, he said: “We want to diversify, but also not give up the established business of cigarettes.”
The non-cigarette portfolio of ITC's business, which includes hospitality and apparels, contributes more than 51 per cent of the net turnover.
“In India, the cigarette business is subject to high levels of taxation. We have urged the Government to moderate the rates of taxation which would yield higher revenue to the exchequer,” he said.
TC Ltd., India’s biggest tobacco company, posted a 17 percent increase in first-quarter profit on higher cigarette prices and an increase in volumes, beating analysts’ estimates.
Net income rose to 8.79 billion rupees ($181 million) in the three months ended June 30, from 7.49 billion rupees a year earlier, ITC said in a statement to the Bombay Stock Exchange today. That compares with the 8.18 billion rupee median estimate of 12 analysts surveyed by Bloomberg News.
ITC, which gets about half its sales from cigarettes, raised prices of some brands after states including Delhi and Maharashtra raised value-added taxes. The Kolkata-based company is raising sales of shampoo, food and clothing as governments increase taxes on cigarettes and add restrictions on smoking. The government made it mandatory for all tobacco products manufactured after May 31 to carry graphic warnings.
“The company had pushed cigarette stocks in the quarter ahead of the government’s May 31 deadline for carrying pictorial warnings on packets,” said Abhijeet Kundu, an analyst at Antique Stock Broking Ltd. He has a “buy” rating on the stock. “There has been about a 5 percent growth in cigarette volumes.”
Despite growing labour trouble, tobacco giant ITC's joint venture in Nepal remains one of the top tax payers in the Himalayan republic, coming second after the state-run Nepal Telecom.
Surya Nepal, ITC's joint venture with British American Tobacco and private Nepali shareholders including members of Nepal's former royal family, was the second-highest tax payer in 2007-08, according to Nepal's apex bank Nepal Rastra Bank (NRB). . . .
Besides being Nepal's biggest manufacture of tobacco products, the nearly 30-year-old ITC joint venture has diversified into garments manufacturing in Nepal.
India’s biggest tobacco company, ITC Ltd, reported an 8.7% rise in third quarter profits on higher cigarette prices.
Net income rose to Rs903 crore in the three months ended December from Rs831 crore a year earlier, Kolkata-based ITC said in a statement to the Bombay Stock Exchange (BSE) on Monday. That’s in line with the Rs904 crore median estimate of nine analysts surveyed by Bloomberg.
ITC’s cigarette sales rose 18% even after the government imposed a ban on smoking in public places, including offices.
Cigarettes had a 52% share in third quarter revenues compared with 49% in the same year-ago period
The company is expanding sales of shampoo, food, clothing and other goods as the government increases taxes and restrictions on cigarettes, which account for about half the company’s revenue.
“Cigarette sales have exceeded expectations,” said Abhijeet Kundu, an analyst at Mumbai-based Antique Stock Broking Ltd. “Increases in cigarette prices and some consumers moving to higher-priced filter cigarettes have contributed to the gains.”
India's top cigarette maker, ITC Ltd, on Monday matched market expectations with an 8.4 percent rise in quarterly profit, but its revenue growth disappointed and sent its shares down 1 percent.
ITC, 31.7 percent owned by British American Tobacco), said revenues and profits were hit by a slowdown in its hotels business as corporate travel fell in the wake of a slowing economy and militant attacks in Mumbai in November.
The company said net profit rose to 9 billion rupees ($185.2 million) in its fiscal third quarter ended Dec. 31 from 8.3 billion a year earlier, while gross revenue rose 8 percent to 59.2 billion rupees from 54.8 billion. . . .
ITC said higher prices from its filter cigarettes helped drive profits even as a ban on smoking in public places curtailed sales. Cigarettes contributed about 66 percent of gross revenue.