High expectations fall short.
By R Chandrasekaran
CHENNAI: Business conglomerate ITC Ltd.’s shares were dragged down by over 4.5 percent after its quarterly numbers failed to cheer investors. This is probably due to sales falling short of expectations especially in their cigarettes business.
Given the significant rise of about 19 percent in stock price within a month, the expectations could have also been slightly on the higher side. Alternatively, investors would have also preferred to lock profit as the derivatives contract expired on Thursday.
While the company’s bottom line increased 18 percent to Rs.18.91 billion for the June quarter, which is in line with street predictions, the top line missed 10 per cent growth to Rs.73.39 billion. Analysts were estimating the company to have generated revenue of about Rs.78 billion.
Only a couple of days back, another Fast Moving Consumer Goods (FMCG) company Dabur reported its June quarter results in line with street expectations. Therefore, the street was expecting a much better results from a company which has wide presence ranging from cigarettes to agri business to hotels to FMCG products such as biscuits, soaps, etc.
Sales of cigarette advanced 7 percent to Rs.35.37 billion, whereas FMCG’s sales increased 18 percent to Rs.17.45 billion. ITC’s profit in cigarette segment also surged 18 percent, but this was offset by losses in other FMCG business thereby dragging the overall profit.
While revenue from hotel business rose 8 percent, its profit plummeted 66 percent. Similarly, its revenue from paper and packaging units grew 10 percent, but profit slid 5 percent.
The June quarter normally has the full impact of the excise duty on cigarettes and this is passed on to the consumers resulting in higher prices. This reduces the volume too in some cases.
The ITC results also impacted the share price of other big FMCG company, Hindustan Unilever that closed 3 per cent lower. However, the stock had surged about 20 percent after the parent company, Unilever’s offer to buy Indian subsidiary shares at Rs.600 closed a couple of weeks ago. Therefore, the counter could have also witnessed profit booking just ahead of its quarterly numbers.
To contact the author, email to rchandrasekaran@americanbazaaronline.com