ITC's cigarette revenues continue to decline

India's FMCG giant ITC on Thursday reported an over 10% rise in its standalone net profit at Rs 2,384.67 crore in the quarter ended June 30. The company had posted a net profit of Rs 2,166 crore in the corresponding quarter of FY2015-16.

The Kolkata-based company also reported an increase of 8.28% in net sales to Rs 13,156.68 crore for the quarter under review as against Rs 12,150.48 crore a year earlier.

ITC, in a statement, said, "The performance of cigarette business during the quarter remained subdued on account of continued pressure on legal cigarette industry in India."

The company further said that over the past four years, excise and VAT on cigarettes, at per unit level, has gone up cumulatively by 118% and 142% respectively. 

In May this year the Supreme Court stayed the order on the increase in the size of pictorial warnings from the 20% to 85%. This resulted in ITC shutting down its cigarette production for 3 days for it to comply with the requirements.

ITC said, "The operating environment for the legal cigarette industry in India was rendered even more challenging during the quarter in the wake of a further increase of 10% in excise duty announced in the Union Budget of 2016 and introduction of the new 85% graphic health warning on cigarette packages."

The impact of these headwinds were seen as the revenue from cigarettes barely managed a 6.42% growth to Rs 8,230.60 crore from Rs 7,733.43 crore in the year-ago period and actually declined by 3.8% from the last quarter Q4 FY2016 where it stood at Rs 8,545.45 crore.

In fact, ITC's cigarette revenues had increased by 10.17% in Q4FY2016 to Rs 4,639.17 crore from Rs 4,210.70 crore. And had even posted a 5.9% sequential rise in revenues from Q3FY2016 to Q4FY2016.

The cigarette revenue in Q3FY2016 stood at Rs 4,379.86 crore.

This spells bad news for the company as cigarette revenues continue to be the largest contributor to the company. Aside from this, the revenues from the hotel and paperboards, paper and packaging segments remained subdued.

Out of the total revenue from operations of Rs 15,020 crore, cigarette business contributed Rs 8230.60 crore. 

Revenue from its hotel business was down marginally by 0.16% to Rs 287.36 crore during the quarter as against Rs 287.83 crore in the corresponding period last fiscal as it continued to be impacted by a weak demand and pricing scenario against the backdrop of excessive room inventory in key domestic markets.

ITC's overall expenses during the quarter moved up 8.11% to Rs 9,988 crore as against Rs 9,238 crore in the corresponding period of 2015-16.

The only positive for the company was the revenue from FMCG-Other segment such as biscuits, noodles, soap, etc. Grew by 9.53% to Rs 2,385.15 crore in Q1 from 2,177.50 crore in the corresponding quarter a year ago.  

(With inputs from PTI)