On growth path

ITC’s sales growth during the September ’06 quarter was powered by its new businesses, even as the cigarettes division provided a stable growth. But profitability still depends on the cigarettes business.

While cigarettes contribute to nearly 67% of gross turnover, it contributes to 82% of the segment profit. The latest quarter saw the cigarettes business post one of its best performances, with a 13.9% growth in sales to Rs 3,101 crore.

Overall sales growth was higher at 23.7%, chiefly owing to agri-trading revenues rising 86.6% to Rs 869 crore, foods division sales rising 66% to Rs 409 crore. Hotels business did well too, with revenues growing 30% while the paper business grew 11%.

However, both these divisions contributed significantly to profit growth, reflecting better realisations in the case of paper and higher room rents and occupancy in the case of hotels. Profits in the cigarette division segment increased 15.9%.

ITC’s operating profit margin, however, declined 390 basis points to 33.7% in the quarter. One reason for this is the higher contribution to sales from the relatively low-margin agri-business, and another is the continuing losses in the foods division.

As a result, net profit growth at 19% in the September’06 quarter was lower than the sales growth. ITC has managed a fine mix of growing sales and profits through its various divisions. While cigarettes will continue to be a key driver of ITC’s profitability, a key trigger going forward will be the foods division’s ability to break even.