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ITC Q3 net profit seen rising 30%

India's largest cigarette maker, ITC Ltd, is expected to have a net profit rise of 25-30 per cent in the October-December quarter, due to higher prices and a small increase in sales volume, according to analysts.

The Calcutta-based company, 31.7 per cent owned by British American Tobacco Plc, increased prices of its premium brand cigarettes by 3.45 to 17.95 per cent in the second half of October.

"This is definitely going to contribute a lot to its earnings. I expect net profit to easily grow by 25-30 per cent," Pritam Lala, an analyst with Jet Age Securities, told Reuters.

ITC, which also has interests in hotels, information technology, retailing and agri-business, will release its third-quarter earnings results on Wednesday.

"The benefit of higher prices would not be diluted by any significant increase in costs", said Mathew Easow, head of Mathew Easow Securities. "This quarter will be one of their best quarters. We are very confident of a 30 per cent profit rise in net profit and this may be a conservative estimate," he said.

However, one analyst said ITC's bottomline could be affected by its spending on advertising, which could not be forecast. "The only cautionary factor is their expenditure on promotion and advertising. Despite that, I expect a 25 per cent increase in net profit," said Mayank Khemka, an analyst with C Mackertich, a Calcutta-based brokerage.

Analysts were also concerned about a slow rise in sales volume.

"Of late there has been a small increase in volume, but it remains an area of concern," Lala said. Easow said his forecast of a 30 per cent jump in net profit was "entirely attributed to the price hike."

The increase in cigarette prices has triggered a steady rise in ITC shares since the first week of November, when the company revealed it had increased prices in October. In the first week of January, ITC's shares touched Rs 955, up 25 per cent since the end of October. Over the same period the benchmark index of the Bombay Stock Exchange rose 9.4 per cent.

Easow said the stock is unlikely to rise further unless the results indicate sales volumes, which have been sluggish, expand strongly than expected.

"If there is an indication of a big upsurge in volume, then the scrip will move in a new territory," Easow said. ITC's shares closed at Rs 868 on Monday.

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