ITC Q2 results update!

• Profit declines: ITC’s net profit declined 20% on-year to Rs 3,232 crore in the quarter ended September, mainly due to a decline in sales of its Cigarette business. ITC said that localised lockdowns in July & Aug’20 impacted recovery momentum for the Cigarette business.  South, Metros and large town markets are relatively more impacted.

• Revenue rises marginally: ITC’s Revenue rose 1% on-year to Rs 11,977 crore, aided by a rise in revenue across agri-business (up 12.8% YoY) and FMCG-Others ( Up 15.4% YoY) segments. Analysts had estimated revenue at around ₹11,200 crore. However, Cigarette Revenues, which make up about 40% of total revenues, remain under pressure. 

• Covid-19 impact on specific segments: Restrictions on travel and tourism has had a severe impact on the company’s hotel business (about 1% of revenue). The FMCG-other business has seen a massive improvement over the previous quarter, aided by strong ‘at‐home’ and essential product consumption. This segment now represents around 30% of revenues and around 10% of the EBITDA. Agri-business has recovered to pre-Covid levels, aided by trading opportunities in rice, mustard, coffee and higher wheat supplies for Aashirvaad atta.

While the pandemic has hurt businesses across sectors, FMCG focussed businesses such as HUL and Nestle have posted decent numbers in the quarter. In fact, food and other FMCG essential services witnessed panic buying and hoarding during the early onset of the pandemic. 

However, in case of ITC, ‘sin taxes’ continue to remain a key overhang, given that Cigarettes business is a major segment in terms of revenue and profits.  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. Wide availability of smuggled cigarettes continues despite deterrent actions by concerned authorities; remains a key challenge for the legal cigarette industry which has witnessed significant reduction in volumes in recent years. The company has been trying to diversify away from tobacco into FMCG and its other businesses.