The Hindu Business Line : Cost push in non-cigarette FMCG biz hits ITC profits

Snapshot
Full-year net turnover growth was driven by non-cigarette FMCG businesses
Healthy performance by the paperboard, paper and packaging segments
Hotel revenues hit by economic slowdown, Mumbai terror strike
Agro business revenues flat due to lower soya volumes

Our Bureau

Kolkata, May 22 In 2008-09, ITC witnessed pressure on profitability because of slowdown and cost escalation in its non-cigarette FMCG businesses but saw a sharp improvement in export margins of leaf tobacco.

The fourth quarter net turnover at Rs 3,892 crore, according to a company release, represented one per cent contraction primarily due to lower exports of agro commodities consequent to adverse market conditions.

It said that the net turnover of the whole year at Rs 15,388 crore was driven by a robust growth in non-cigarette FMCG businesses and a healthy performance by the paperboard, paper and packaging segments.

“This performance was achieved despite the unprecedented increase in excise duties on non-filter cigarettes, coming close on the heels of the unparalleled levy of VAT on cigarettes in the preceding year.”

The company said: “With organised industry substantially vacating the non-filter segment and the huge financial arbitrage resting in tax evasion, contraband and domestic illegitimate players have mushroomed leading to an estimated trebling of illegal cigarette volumes. These low priced tax-evaded illegal cigarettes are a growing threat to Government revenue, market stability and the social objective of regulating tobacco”.

The decline in hotel revenue in the wake of economic slowdown and the terror strikes in Mumbai, the continuing impact of high commodity prices and store rentals and brand building costs of the new personal care portfolio and the significant investments in augmenting the distribution infrastructure and systems combined to exert intense pressure on profitability during the year.

The constructions of super-deluxe hotels in Bangalore and Chennai are, however, on schedule.

agro business

The agro business revenues remained flat over the previous year due to lower soya volumes and rationalisation of the agri-commodity portfolio, necessitated by the increasing policy interventions and volatility in the commodity markets since the previous year.

However, margin growth jumped and nearly doubled. This could be achieved because of leaf tobacco portfolio.

“The business cemented its position as the foremost exporter of leaf tobacco, leveraging the growing demand for Indian tobaccos.”

Sales of value added paperboards grew by 13 per cent during the year fuelling revenue growth and improvement in market standing.

“The company’s operating strategies centred on stabilising the investments in the pulp and paper capacities apart from improving energy management and enhancing internal efficiencies to yield sustainable cost advantages.”

lifestyle retailing

Weak consumer sentiment in the backdrop of slowdown affected growth of domestic sales in the lifestyle retailing, particularly the mid-price segment of ITC’s John Players brand.

However, exports to the US and Europe of the lifestyle products rose 32 per cent.

In the stationery business, ITC could position itself as the country’s largest notebook marketer. There was a drop in sales volumes of safety matches after prices were increased following escalation in the cost of key inputs.

The sales now, however, have recovered, ITC said.

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