InvestorQ : How do you see the profit performance of ITC for the Sep-20 quarter?
Katherine Gonsalves made post

How do you see the profit performance of ITC for the Sep-20 quarter?

rhea Babu answered.
6 months ago

For the Sep-20 quarter, cigarette maker ITC reported 18.09% lower profits at Rs.3,419 crore. The company reported a marginal 2.18% rise in the Sep-20 quarter sales revenues at Rs13,148cr. Sales did take a hit on account of the slowdown.

Let us look at the operating performance. For the Sep-20 quarter, operating profits were lower by 9.71% at Rs.3,996 crore and this can be attributed to higher pressure on the cigarettes business due to the lockdown and the ban on loose cigarette sales. Consequently, OMP contracted by over 1200bp to 30.40%.

Net profits were down, as mentioned earlier, due to operating profit challenges which eventually got carried forward to the bottom line. In addition, lower other income also contributed. Net margins contracted by more than 1300 bps.

The real problem for ITC is the over dependence on the cigarettes business for profits, if not for sales. Consider these numbers. In terms of overall revenues of ITC, cigarettes accounted for just about 38%, FMCG 27%, agri-business at 21% and paperboards at 10%.

The real problem becomes evident when you look at cigarette profits. Remember, cigarettes still account for 81% of the total profits of ITC, showing how concentrated its profitability is. That was the reason and continues to be the reason for its problems.