MUMBAI (NewsRise) - ITC, India's biggest cigarette maker, reported a better-than-expected 5.7% rise in third-quarter profit and elevated operating chief Sanjiv Puri to its chief executive starting next month.
ITC, also known for its Maurya hotel chain, said net income for the three months ended in December was 26.47 billion rupees ($389 million), compared with 25.04 billion rupees a year earlier. Net sales rose 4.7% to 135.70 billion rupees. Analysts were expecting a profit of 25.54 billion rupees.
The company said is performance was aided by a surprise recovery in demand towards the end of the quarter, as liquidity conditions improved in the market. India's ban on high-value currency notes in November had caused a cash crunch in the economy, damping demand.
In June, ITC said long-time Chief Executive Officer Yogesh Chander Deveshwar will retire on Feb. 5, and will remain as a non-executive director and chairman for three years. The next month the company appointed 53-year-old Puri, who joined ITC in 1986, as its chief operating officer.
Puri's appointment will be effective Feb.5, when Deveshwar retires. The management changes come as the cigarette-maker is grappling with a sustained rise in taxes, increasing illegal trade and a regulatory clamp down on smoking that has hit cigarette sales volume in recent years.
Indian authorities have been trying to create public awareness on tobacco-related health issues, launching anti-smoking campaigns and forcing companies to display larger graphic images on cigarette packs. Smoking in public places is also restricted.
Revenue from cigarettes, which account for about 60% of the company's sales, barely rose 2% from a year earlier to 82.88 billion rupees.
The performance of the cigarette business was "subdued" due to tight liquidity conditions in the market and continued regulatory and taxation pressures on the cigarette industry in India, the company said in a statement.
India had in November recalled high-value notes that accounted for 86% of the currency in circulation in a bid to crack down on corruption. The move led to a cash shortage in Asia's third-largest economy, resulting in a consumption slowdown.
Meanwhile, New Delhi is seeking to push through the nationwide goods and services tax, which will replace a complex system of state-specific taxes with a uniform rate across the country, as part of Prime Minister Narendra Modi's efforts to improve the ease of doing business in India.
The new tax structure, when it comes to effect, is expected to legitimize the cigarette industry and expand volumes, say analysts.
"This can be a great opportunity for legitimate cigarettes industry to combat the menace of the flourishing contrabands," ICICI Securities said in a note last month. "While this shall help the exchequer to garner higher revenues, legitimate cigarettes industry shall see moderate volume growth over medium term."
Sales at ITC's consumer goods segment that includes products such as Fiama Di Wills shampoo, Dark Fantasy biscuits and Vivel soaps, rose 3.4%, while the hotels business revenue grew 7.5%. Revenue from paperboard and packaging business slipped marginally.
Consumer goods sales were adversely impacted by "lower consumer offtake and reduction in trade pipelines particularly in the immediate aftermath of the government's decision to withdraw specified high-denomination currency notes," ITC said.
ITC shares, which have the biggest weight in the benchmark S&P BSE Sensex, lost 2.78% in Mumbai trading, while the benchmark index gained 0.63%.
--Dhanya Ann Thoppil