ITC Q2 net down 20% at Rs3,232 cr as Covid hits cigarette sales

Consumer goods major OTC Ltd has reported a 20 per cent year-on-year drop in its fiscal second quarter net profit at Rs 3,232 crore, impacted by the lockdown in the wake of the corona virus pandemic and lower sales of cigarettes.

Revenue was higher by 1 per cent at Rs11,977 crore. Operating profit stood at Rs4,061 crore, down 11 per cent YoY, while operating margin was lower at 33.9 per cent compared to 38.4 per cent a year ago, according to ITC’s exchange filing.
The operating environment remained extremely challenging during the quarter with the unabated increase in daily Covid cases prompting several states to impose localised lockdowns. This impacted the recovery momentum, particularly in the months of July'20 and August'20, and   posed significant challenges to sales operations. The situation continues to improve with the progressive easing of restrictions from 20 September, the company said.
Yet, the company recorded a strong recovery in July-September 2020-21 revenues across all operating segments, including cigarettes. Gross revenue stood at Rs11,891.91 crore, representing a growth of 26 per cent q-o-q and 1.2 per cent y-o-y. The FMCG-others segment delivered another quarter of strong performance driven by staples, convenience foods, health and hygiene products leveraging the strong equity of the company's brands and a robust portfolio of relevant and innovative products.
ITC said its hotels business continued to remain adversely impacted due to restrictions on travel and tourism while closure of educational institutions across the country weighed on the performance of the education and stationery products business.
The impact of negative operating leverage was partially mitigated through relentless focus on cost reduction. Profit after tax stood at Rs3,232.40 crore, showing a decline of 12.2 per cent on a comparable basis (adjusting for one-time benefit of Rs340 crore in base period due to reduction of corporate tax rate). Total Comprehensive income stood at Rs3,394.02 crore (previous year Rs3,979.73 crore). Earnings per share (EPS) for the quarter was down at Rs2.62 against Rs3.28 in the comparable quarter of the previous year.
The company said business is progressively getting normalised across all operating segments with increased mobility and recovery in economic activity.
Most consumer goods makers, including ITC and its peers like Hindustan Unilever Ltd., Marico Ltd., Dabur India Ltd. and Godrej Consumer Products Ltd, will take some time for full recovery as the industry continues to face supply-chain and labour issues as well as a partial loss of market. 
ITC’s cigarette segment revenue fell 3.8 per cent year-on-year to Rs5,121 crore. Revenue of the remaining FMCG business rose 15.4 per cent to Rs3,795 crore. Hotels revenue fell 80.7 per cent to Rs82 crore. Agri-business revenue rose 12.7 per cent to Rs2,985 crore. Paper-boards segment revenue declined 6.8 per cent to Rs1,459 crore.
While consumption of essential products moderated as the lockdown restrictions were lifted, they still remain higher than pre-Covid levels, the company noted.
ITC aligned its supply chains with e-commerce as consumers opted to shop online, increasing the contribution from the channel to the revenue to more than 5 per cent. Sale of goods through the modern trade or hypercities and supermarkets grew at a slower pace as people preferred neighbourhood stores.
The company scaled up network of rural stockists to counter disruption in the wholesale channel. "This, along with sharp targeting of rural markets in certain states that witnessed reverse migration due to the pandemic, led to strong growth in rural sales.”
Restrictions on tourism and travel hurt this business, but occupancy and revenue continue to improve on a month-on-month basis. Cost cuts saved about half of controllable cash fixed costs, the company said.
Consumer offtake in pharma, homecare, packaged foods, personal care recovered to pre-Covid levels, while wedding cards, publication, and notebooks remain subdued. Exports grew.
Higher segment revenue was driven by trading opportunities in rice, mustard, coffee and higher wheat supplies for Aashirvaad atta.