MUMBAI: Industry analysts expect ITC's FMCG business to turnaround in the fourth quarter of the current fiscal year. ITC, which posted about 19% growth in revenues year-on-year (YOY) and a 21% growth in profit during the second quarter ended September 30, 2012, reported a 26% growth in FMCG sales with 237 basis points YOY margin expansion.
FMCG losses were down about 46% YOY and the division's net sales during the quarter were Rs 1,691 crore. We expect this business to turnaround in Q4FY13,'' said a report by Edelweiss Institutional Equities.
Sales of value-added and premium products, which continued to grow at a faster clip, helped portfolio premiumisation and enriched sales mix. Improvement in profitability was further aided by smart commodity sourcing, better market servicing and strategic cost management initiatives. During the quarter, ITC cut grammage across its biscuit portfolio to meet the new packaging norms, resulting in price increase. Sunfeast brand sustained its growth trajectory and gained leadership in the premium cream biscuits segment,'' said Edelweiss.
ITC's skin care category, on the other hand, witnessed strong performance of Vivel Luxury Creme and Vivel Clear variants. The quarter saw the launch of Exotic Dream, transparent gel bar, in select markets under the Fiama Di Wills brand.
ITC's numbers for the second quarter ended September 30, 2012 (Q2FY13) surpassed analysts expectations, although its hotel business disappointed with flattish sales and a 65% dip in profit, reflecting slowdown in the hotel industry. The company posted a 21% growth in net profit at Rs 1,836 crore, while total income rose 19% to Rs 7,227 crore during the quarter. ITC delivered a stellar set of numbers which was ahead of our estimates. EBIT losses of other FMCG business stood at Rs 30 crore, down from Rs 56 crore in 2QFY2012. We have a neutral view on FMCG sector due to the high valuations,'' said V Srinivasan, research analyst, Angel Broking, which maintains a neutral view on ITC as well due to its rich valuations.
ITC's results in 2QFY13 were well ahead of our expectations. Results shall likely lead to earning upgrades; however, valuations are demanding,'' said Ritwik Rai, FMCG Analyst, Kotak Securities.
National roll-out of 64 mm cigarettes, and impact on volume/margin trajectory are said to be key factors to watch for.
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