Stock Review: ITC

ITC posted a better set of numbers for the September quarter compared to the corresponding quarter a year ago, with sales increasing about 17 per cent year-on-year (y-o-y) to `5,147 crore. The rise was led by growth of 15 per cent in the cigarettes business, whose volumes declined at a lower rate of less than one per cent.

Operating profit margins were around 36 per cent despite other expenditure increasing 16.23 per cent. There was a slight improvement in profit before interest and tax margin in almost all businesses, while losses in non-FMCG businesses were curtailed.

Net profit margin improved 129 basis points to 24.2 per cent due to better operational performance and a 82 per cent jump in other income. However, tax costs surged 21 per cent.

ITC's cigarettes business continues to face challenges like flat and lower single-digit volume growth, courtesy price rise in response to duty hikes by various governments and competition from cigarettes on which duty has not been paid. However, being a market leader, the company has relatively better pricing power.

Other businesses are also on a strong footing. While the branded packaged foods (BPF) business, which comprises Bingo, Sunfeast biscuits, Aashirwaad atta and confectionery, is expecting lower losses, the hotels business is witnessing better occupancy and improvement in average room rates.

The outlook for the paper segment is also bright on the back of higher gross domestic product growth, capacity expansion and demand from its own stationary division. The agri business, though volatile, will gain partly due to requirements of BPF and cigarettes.

Besides capacity expansion in hotels and paper, the company has forayed into categories like noodles, fairness cream and anti-hair fall shampoo in order to expand product offerings under respective categories and propel growth.

The stock has gained 2.33 per cent since the announcement of the results. It ended 0.4 per cent higher at `171.85 on Monday and trades at 23 times 2011-12 estimated earnings.

The company's strong performance in the September quarter, led by all businesses, is expected to continue