ITC profit rises 26% as price hikes aid

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ITC, India's largest cigarette maker, reported a better-than-expected 26 per cent rise in quarterly profit as higher prices and strong results at its food and agricultural business protected margins from slipping cigarette volumes.

The conglomerate has been forced to increase cigarette prices by 11 per cent since the budget in March raised taxes on tobacco, triggering some concern among investors as volumes, according to analysts, moderated for the third straight quarter.

ITC's net profit rose to Rs 16.14 billion in the fiscal fourth quarter ended March from Rs 12.8 billion a year earlier.

"Consistently if you take price hikes, volumes are bound to suffer and the slight dip there is dampening sentiment," said Naveen Trivedi, an analyst with Karvy Stock Broking.

"But their agri-business and foods has done well and offset some of the impact," he said.

Analysts on average had expected ITC, 25.4 per cent owned by British American Tobacco Plc, to report a net profit of Rs 15.7 billion, according to Thomson Reuters I/B/E/S.

The company also reported other income of Rs 2.07 billion in the fourth quarter, compared with Rs 1.13 billion a year ago.

The company, which also makes consumer goods of everyday use such as soaps, shampoos along with processed food items and exports agricultural commodities, said net sales grew 17.5 per cent to 68.6 billion rupees.

Sales at the company's agri-business, which gets a fifth of its revenue from exports of items such as basmati rice, processed fruits and soymeal, rose 31 per cent from the same period a year ago as a sliding rupee bolstered earnings.

The rupee has lost 12.7 per cent against the dollar from its 2012 peak in February.

ITC's fast moving consumer goods business, excluding cigarettes but including packaged foods and personal care products, has grown 24 per cent.

Brokerage ICICI Direct expects the company, which gets nearly half of its revenue from cigarettes, to hike prices by another 8 percent this year.

Cigarette volume growth dipped to around 5 per cent from 6 per cent in the same period a year earlier, analysts said.

Shares in ITC, seen as a defensive stock in a slowing Indian economy, ended 0.64 per cent weak after rising 16 per cent in 2012, slightly more than the sector index's 14 per cent gain.

The stock trades at 24.9 times its 12-month forward earnings, compared with peers Hindustan Unilever's 25.6 times, Nestle India's 32.2 times and Godrej Consumer's 20.5 times, according to Thomson Reuters Starmine Smart Estimate.