Post Tax Profits up by 23.5%
October 29, 2010
Financial Results for the Quarter ended 30th September, 2010
ITC delivered yet another sterling performance with healthy topline growth and high quality earnings during the quarter. Net Turnover at Rs. 5061 crores grew by 16.3% driven primarily by the Branded Packaged Foods, Agri and Cigarette businesses. Pre-tax profits increased by 22.7% to Rs.1830 crores while Post-tax profits at Rs.1247 crores registered a growth of 23.5%. Earnings Per Share for the quarter stood at Rs. 1.63.
FMCG - Branded Packaged Foods
The Branded Packaged Foods business continued to expand with sales growing by 26% during the quarter. The business achieved significant improvement in profitability through a combination of product mix enrichment, higher net realisation, smart commodity sourcing and active cost management across the supply chain.
The quarter marked the Company's foray into the fast-growing Instant Noodles market in India with the launch of 'Sunfeast Yippee!' in two differentiated flavours. Initial consumer response has been encouraging and the product is being rolled out to target markets in a phased manner.
The 'Bingo!' range of potato chips and finger snacks continued to gain traction with consumers, registering a strong growth in revenues. The exciting range of variants along with clutter-breaking advertising and brand promotions continue to maintain the buzz around the brand.
'Sunfeast' biscuits grew by 32% during the quarter driven by product mix improvement with significant growth in the sales of value-added variants of cookies and creams.
In the Staples category, 'Aashirvaad' atta further fortified its leadership position with sales growing by 29% during the quarter driven by improved realisation and higher volumes. Confectionery category revenues grew by 18% during the quarter supported by the launch of an orange variant of 'mint-O Gol' earlier this year and increasing consumer franchise for Eclairs and Lactos.
The business is continuing to invest in manufacturing and distribution infrastructure to support larger scale. Comprehensive interventions continue to be made in the area of supply chain management to enhance product freshness, market servicing and margins.
Cigarettes
Against the backdrop of a challenging business environment, the Company's unwavering focus on delivering superior consumer value through world-class products enabled it to sustain its leadership position in the industry. Consumer centricity and product innovation have enabled the business to deliver superior value through its brand portfolio of well crafted blends, contemporary packaging styles and state-of-the-art manufacturing technology and processes. Several initiatives launched during the year across the brand portfolio in terms of pack modernisation, improvement in smoke profile and introduction of new brands and variants such as 'Lucky Strike', 'Classic Menthol Rush', 'Gold Flake SLK' have bolstered the Company's market standing. During the quarter, the business launched the 'Player's Gold Leaf' brand positioned at the premium regular-size filter segment. The business continues to test market its products in the new 'micro filter' segment (length not exceeding 60 mm). Investments continued to be made towards enhancement of quality, productivity and variety.
The cause for concern, however, remains the severe taxation and regulatory milieu for cigarettes in India. The already high and punitive tax incidence on cigarettes in India was further exacerbated with a steep increase of 17% in excise duties in the Union Budget 2010, increases in VAT rates and new Entry Tax imposts by several States. Consequently, industry volumes have come under severe pressure.
The Ministry of Health and Family Welfare, Government of India recently released the report of the first Global Adult Tobacco Survey (GATS) - India 2010. The GATS report highlights that out of the 34.6% of adults in India who consume tobacco in any form, only 5.7% of adults smoke cigarettes. The remaining smoke bidis or consume chewing tobaccos. Despite such a low share of tobacco consumption, cigarettes contribute more than 85% of the tax revenues from the tobacco sector. Taxes realised from every kilogram of tobacco consumed in the cigarette format are almost 20 times higher than those from other forms of tobacco products. Such a deeply discriminating taxation regime will drive migration from cigarettes to cheaper and lightly taxed forms of tobacco consumption. Clearly there is a need to pursue a balanced taxation agenda, which is equitable to all stakeholders, even as it progressively achieves the social objective of controlling tobacco consumption.
The organised industry continued to be impacted by the vacuum created by the exit of the popular low priced micros and plain non-filter cigarettes (in the wake of the heavy imposition of excise duties in 2008). This provided the headroom for tax-evaded cigarettes to enter the market in a big way. These tax-evaded cigarettes sell in the market at prices that do not even cover the cost of taxes payable thereon. Such domestic tax-evaded cigarettes which, along with smuggled cigarettes, are estimated to constitute nearly 12% of the Indian market, not only deprive the legitimate industry of revenues and profits that it rightfully deserves but also deny the Exchequer of its fair share of taxes. It is imperative that the authorities strengthen enforcement to eliminate this fast growing illegal industry.
Despite the challenging market conditions, the Company remains confident of leveraging its internationally benchmarked product quality, the resilience of its brands and the superiority of its competitive strategies to consolidate its leadership position in the industry.
Education & Stationery Products
The Stationery business continued on its impressive growth trajectory registering a growth of 25% in sales during the quarter. The leadership position of the 'Classmate' brand of notebooks is being further leveraged with an enhanced portfolio of scholastic products comprising geometry boxes, pens, pencils, highlighters, etc.
The business continues to actively promote 'Paperkraft', its executive and office supplies stationery brand. Working in tandem with the Paperboards & Specialty Paper Division (PSPD), the business has positioned 'Paperkraft' as the finest 'green' paper for business applications viz. copy-scan-print-fax. Paperkraft's 'green' credentials include the Company's membership of the prestigious Global Forest & Trade Network, an international initiative of the WWF (World Wide Fund for Nature). The Company's social forestry programme continued to enhance Paperkraft's 'green' profile.
Personal Care Products
The Personal Care business continued to gain consumer franchise, with revenues growing significantly during the quarter. Product offerings under the 'Essenza Di Wills', 'Fiama Di Wills', 'Vivel Di Wills', 'Vivel' and 'Superia' brands are focussed on enhancing consumer benefits. The business sustained its impressive growth in the Soaps category, achieving a volume market share of 5%.
The business made a foray into the fast growing and relatively under-penetrated domestic skin care market with the launch of 'Vivel Active Fair Cream' in June 2010. The product is being progressively rolled out to select markets.
Product portfolio was also augmented during the quarter with the launch of an Anti-Hairfall shampoo variant under the 'Fiama Di Wills' brand. The product leverages the Hair Restore Technology, developed at the ITC R&D Centre, which strengthens hair and reduces hair fall due to breakage. The product has been launched in Tamil Nadu and will soon be extended to other target markets.
The business is investing in building a strong portfolio of products and brands through well-defined research and development strategies backed by the Company's state-of-the-art R&D Centre. It is also continuously enhancing the quality of engagement with consumers through efficient deployment of media, direct contact and promotional activities across conventional and new age consumer connect avenues.
The business continues to leverage investments in manufacturing facilities at Haridwar (Uttarakhand) and Manpura (Himachal Pradesh). Apart from the fiscal benefits that accrue on such investments, these facilities will provide a higher degree of flexibility in manufacturing.
Hotels
The relatively improved business environment witnessed in the last 6 to 9 months continued into the second quarter. This was reflected in the robust performance of the segment during the quarter with revenues and profits growing by 20% and 26% respectively.
The ITC Royal Gardenia, Bengaluru, a 292 room luxury hotel launched in October 2009, is the largest LEED (Leadership in Energy and Environmental Design) Platinum rated hotel in the world and the first in Asia to achieve this distinction. The hotel has successfully occupied the niche position of 'Responsible Luxury'. It was recently rated amongst the '50 Best New Hotels in the World' by Conde Nast.
The 'Dum Pukht' at the ITC Hotel Grand Maratha, Mumbai and the 'Bukhara' at the ITC Hotel Maurya, New Delhi received global recognition being the only two Indian restaurants to be rated amongst the Top 20 restaurants by the Miele Guide (a Singapore based regional guide book listing the Top restaurants in Asia).
Construction activities of the new super luxury properties at Chennai and Kolkata are progressing satisfactorily. In addition, several renovation programmes are nearing completion including room renovations and addition of a new shopping arcade at the ITC Mughal in Agra. Several new projects including joint ventures and management contracts are on the anvil to rapidly scale up the business across target market segments.
Paperboards, Specialty Papers & Packaging
The business posted an impressive performance during the quarter with Segment Revenues growing by 17%. Segment Results grew at a faster 32%, driven by a combination of product mix enrichment, higher realisations and enhanced value capture through in-house pulp production.
The business continued to leverage its integrated model - access to high-quality fibre from the economic vicinity of the Bhadrachalam mill, in-house pulp mill and state-of-the-art manufacturing facilities on the one hand and a robust forward linkage with the Education and Stationery Products business on the other - to further consolidate its leadership status in the Indian Paper and Paperboards industry. In order to sustain its pre-eminent position in the Paperboards segment, investment in a state-of-the-art machine is underway which is expected to be operational by mid 2012.
The Packaging and Printing business continues to provide strategic sourcing support to the Cigarette, Foods and Personal Care businesses. The business is in the process of enhancing its capacity while leveraging its existing state-of-the-art investments in flexibles and carton lines to deliver value added packaging to key customers in the consumer electronics and FMCG industries. Sales to external customers registered a robust growth.
Agri Business
During the quarter, the Agri business posted a healthy performance recording a revenue growth of 22% primarily due to improved trading opportunities presented in soya and rice and increased wheat sourcing for the Branded Packaged Foods business.
The business continues to provide strategic sourcing support to the Company's Cigarette and Branded Packaged Foods business by ensuring high quality supplies. Construction activity of the new green leaf threshing facility in Karnataka is progressing satisfactorily.
Contribution to Sustainable Development
The Company, foreseeing the unprecedented threat to sustainable development as a consequence of societal challenges arising out of poverty, environmental degradation and climate change, has vigorously pursued a conscious strategy to align its businesses to serve a larger societal purpose. Unique business models have been crafted to synergistically deliver economic, environmental and social value. The Company today is the only corporation of its size to be 'carbon positive', 'water positive' and 'waste recycling positive' even as it has created sustainable livelihood opportunities for over 5 million people.
ITC's recycling initiative 'Wealth Out of Waste' (WOW) - has been internationally recognised by Bureau of International Recycling. WOW reaches out to schools, institutions and homes through awareness building and source segregation of waste. There are currently over 100 corporates supporting WOW and more than three lakh households across southern India participating in the initiative. In order to inculcate the habit of source segregation among young children, WOW is spreading the idea of recycling in schools and the immediate plan is to cover at least two lakh school children during the year 2010-11 across southern India. ITC has initiated commemorating 1st July as National Recycling Day to create larger awareness of the importance of recycling.
The Company continued to enlarge its social sector footprint by expanding to newer districts during the period. It continued to focus on the three main areas of interventions under Mission Sunehra Kal: (a) natural resource management, which includes wasteland, watershed and agriculture development (b) sustainable livelihoods, comprising women's economic empowerment and genetic improvement in livestock and (c) community development, with focus on primary education and health and sanitation. ITC is currently running social development projects in 56 districts spread over the states of Andhra Pradesh, Kerala, Karnataka, Tamil Nadu, Orissa, West Bengal, Bihar, Uttar Pradesh, Maharashtra, Madhya Pradesh and Rajasthan.
The pioneering initiative of social development projects including watershed development, Social Forestry Programmes, Soil & Moisture conservation programmes is designed to assist farmers in identified moisture-stressed districts, preservation of precious topsoil for agriculture and group irrigation projects. The households covered under the Social Forestry Programme continue to reap the benefits derived from cut plantations during the period. Towards improving the income earning capability of the farming community, Sustainable Agricultural Practices were continued with the promotion of organic fertiliser units through vermi-composting and NADEP technologies. Several varieties of paddy, gram and wheat have been tested in 474 field demonstrations leading to participative selection of higher productive strains by farmers. Similarly, the Sustainable Livelihoods initiative of the Company strives to create alternative employment for surplus labour and decrease pressure on arable land by promoting non-farm incomes. Among many such activities under Sustainable Livelihoods initiative to provide the potential to alleviate people from poverty, the programme for genetic improvement of cattle through artificial insemination to produce high-yielding crossbred progenies has been given special emphasis. Integrated animal husbandry services addressed the needs of problem breeders, vaccines, feed additives and awareness drives. The initiative for the economic empowerment of women also continued apace with gainful employment being provided either in micro-enterprises or through self-employment with the support of loans from banks for various income generation activities.
The Company's social sector footprint can be viewed at a glance in the following chart:
| Intervention Areas |
Unit of Measurement |
Q2 2010-11
(Cumulative Achievement) |
| Total Districts Covered |
Number |
56 |
Social and Farm Forestry
Area Planted
Employment Generation |
Hectare
Million Person days |
111,578
50.20 |
Soil Moisture Conservation Programme
Area Covered |
Hectare |
56,171 |
Sustainable Agricultural Practices
Organic Fertiliser Units |
Number |
13,653 |
Sustainable Livelihoods Initiative
Cattle Development Centres
Animal Husbandry Services |
Number
Milch Animals |
176
477,827 |
Economic Employment of Women
SHG Members
Women Entrepreneurs |
Persons
Persons |
11,822
30,116 |
Primary Education
Beneficiaries |
Children |
244,547 |
Health and Sanitation
Low Cost Sanitary Units |
Number |
2,959 |
ITC ranked sixth amongst consumer companies globally by Boston Consulting Group for sustained value creation during 2005/2009.