ITC Announces Q1 Results!
Last updated: 26 Jul, 2020 | 11:46 am
ITC’s Net profit fell 26% YoY to Rs. 2,343 crore in Q1FY21 as Coronavirus outbreak clobbered sales despite some of its products being classified as essentials. ITC’s operating profit fell 42% YoY to Rs. 2,646 crore.
Revenues decline across segments: The revenues of ITC have contracted 17.4% YoY to Rs. 9,501 crore in Q1FY21. Cigarette revenues, which contributed to about 40% of the total revenues contracted by about 29.1% YoY to ₹3,853 crore. The hotel business took the biggest hit as the revenue reduced by a whopping 94.4% YoY to Rs. 22 crore. The paper board business declined 32.8% YoY to Rs. 1026. The only respite was FMCG and Agribusiness which saw a slight increase of 10.3% and 3.7% YoY respectively.
ITC has been battling its worst consumption slowdown in more than a decade. The slowdown has been going much before the pandemic. The impact of this quarter on ITC is huge is probably an understatement.
Manufacturing of cigarettes resumed mid-May and is now at Pre-COVID levels. However, distribution is still a challenge due to partial lockdown in many states. In the hotel segment, operation during the quarter literally came to a standstill. Severe travel restrictions and heightened hygiene concern will continue to hurt this segment.
Going forward, ‘sin taxes’ will remain a key overhang on the firm. If the government is unable to meet its revenue targets through taxation, it may need to continue to lean on taxing “sin goods”, such as cigarettes. Such a hike would also impact ITC’s overall revenues as cigarettes form more than 40% on the revenues.
The company has been trying to expand its FMCG business. They aim to reduce their reliance on the cigarette business. A huge positive for the company is surplus cash. We should start seeing ITC increase its Capex in the FMCG sector. The company can acquire new brands and expand capacity. The acquisition of Sunrise Food during the quarter was a perfect example.
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