How cigarettes light up ITC’s other businesses

 Here are pointers that explain how ITC makes its money:

• Non-cigarette revenue looks up: Non-cigarette businesses like apparels, hotels, paperboard and agriculture account for nearly 60% of the total revenue of ITC. The company reported gross sales of Rs 10,969 crore for the quarter to June 2014. Cigarettes sales alone raked in Rs 4,200 crore. Other consumer products like apparels, personal care and food products contributed Rs1,935 crore, while the agriculture business pulled in Rs 3,296 crore. Paperboards and stationery accounted for the balance.
• Cigarette profits dominate: Although revenue from other businesses is rising, cigarettes continue to bring in most of the profits. The cigarettes business turned in Rs 2,700 crore of the total Rs 3,171-crore profit before interest and taxes.  Analysts expected consumer and hotels businesses to report a marginal profit. However, they reported minor losses. The paperboard businesses posted better-than-expected profits.
• How it spends: The company spent 43.4% of the revenue on raw material. This cost was higher than expected by the market. However, the company kept employee spending down at 5.6% of the revenue and other spend – which includes advertising and marketing – was kept low at 16.2% of revenue. Analysts expected expenditure on these two items to be higher. 
• Other businesses: ITC’s non-cigarette consumer products sales growth was slower at 11% in the quarter to June, the lowest-ever reported, according to analysts. ITC’s hotel business witnessed a flat growth in revenue but a drop in segment profit. This was because it had to take a charge of Rs 14 crore on depreciation due to changes in the new Companies Act. The hotels business was affected during the April to June 2014 quarter because the Indian Premier League’s initial stage was held outside India, according to a Kotak Securities report. The restriction on liquor during general elections also pushed the business down, the report added.
• Key factor ahead: ITC’s cigarette volume growth could fall going forward due to a 10-20% rise in excise duty, estimates Kotak Securities. Cigarette volume is the number of cigarettes the company sells. Due to a sharp rise in prices of cigarettes, smokers could opt for cheaper variants. In the quarter to June 2014, smokers were seen opting for cigarettes that are smaller in size.

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