ITC: Diversifying Its Future

Diversified conglomerate ITC posted better than expected topline and bottomline growth for Q3FY14. Its topline grew by 13% on a YoY basis this quarter to Rs 8623 crore as against Rs 7627 crore reported during the same quarter last fiscal. Net profit grew by 16% on a YoY basis to Rs 2385 crore. One noticeable point about ITC’s reslts is that there has been a significant increase in the other income, which stood at Rs 391 crore witnessing a jump of 19% on a YoY basis for Q3FY14.

On the operational front, raw material prices as a percentage of sales stood at 32% witnessing a growth of 130 basis points on a YoY basis for Q3FY14. On the other hand other expenses, which also include ad spends, stood at Rs 1602 crore, up by 12% on a YoY basis. According to the company management, while the launch and rollout costs of the company's brands 'Fiama Di Wills', 'Vivel', 'Superia' and 'Engage' continue, the brand building costs of the foods businesses have also remained on the higher side.

The EBITDA came in at Rs 3284 crore, up 14.91% but the EBITDA margins came in at 38% which were up by 61 basis points on a YoY basis. There were expectations that the company would post EBITDA margin of around 40% for this quarter.

On the segmental front, cigarettes, which contribute to 43% of the topline, grew in sales by 13% on a YoY basis to Rs 4116.07 crore. But what needs to be highlighted on the segmental front, is the performance of the FMCG business. This business recorded a robust growth of 17% on a YoY basis and more importantly achieved a breakeven posting a profit of Rs 10 crore for the quarter. This was in spite of a general slowdown and reduced spending by consumers. Agri business, Hotels and Paper Products have witnessed a growth of 10%, 2% and 18% respectively on a YoY basis.

Although the company may have disappointed street expectations, the seeds for long-term growth are already sown, which can be seen from the fact that the FMCG or the non-cigarette businesses have started yielding results. The stock has remained listless and is trading at around Rs 325 on a flat note.