ITC's stellar performance in June quarter largely driven by cigarettes business

ITC's stellar performance in the quarter to June has largely been driven by its cigarettes business. While the non-cigarette FMCG business too did well on the revenue front - it remains a money guzzler for the company.

Its hotels and agri businesses recorded a flat growth in revenues with the hotels business reporting a significant drop in margin from 22.3% a year ago to 11.3%.

The growth of 15% in its cigarettes business was largely value-driven. The company managed to improve margins in this segment by 260 bps - thanks to aggressive price increases following a hike in excise duty on cigarettes. Its non-cigarette FMCG business grew 23% in revenue terms.

While this segment continues to make losses, the loss at Rs 38.8 crore is only half of what it was a year ago. However, on a sequential basis, the segment's loss has doubled from what it was in the December quarter.

The sequential increase in the loss implies that the company has had to spend more to market its products in an intensely competitive environment.

The FMCG categories in which ITC is present - biscuits, atta, noodles, snacks and personal care products - are all high-clutter categories requiring significant brand investment to get established. The cigarettes business helps ITC to bankroll this and still managed to log a 166-bps improvement in its overall operatingmargin of 35.6%.