ET Intelligence Group: ITC's September quarter performance was characterised by a strong uptick in revenue, but a sharp profitability retreat. While the standalone topline rose 16% to cross the ₹20,000-crore mark, driven by agri and hotel business segments, the operating profit margin dropped 330 basis points to 31.1% and the net profit rose 3%.One basis point is a hundredth of a percentage point. Raw material cost inflation was the single biggest factor that hurt the margins. The raw material cost surged 29% year-on-year led by the rise in prices of leaf tobacco and wood. The raw material cost as a proportion of sales rose from 40.2% in the same quarter last year to 44.6% this year.The cigarette business - contributing 40% to ITC's top line and 80% to the bottom line - posted a 7% rise in revenues. However, the segment's margins dropped 100 bps due to severe cost escalation of leaf tobacco prices despite measures such as cost rationalisation and price increases.Except for the hotel business, all other segments suffered a decline in profitability. The hotel business revenues grew 12% on a high base quarter with over 130 bps improvement in margins. Food & beverages, retail and weddings drove the growth in the segment.114563936The agribusiness revenues surged 47% on the back of leaf tobacco and value-added products like coffee, fruits, vegetables and spices. However, the profitability dropped by 120 bps. The FMCG business revenues grew at a modest 5% with the notebooks segment impacted by high base effect and opportunistic play by local brands in the wake of a sharp drop in paper prices. As a result, the segment margin dropped 37 bps to 7.9%.The paper & packaging business was the worst-performing segment with a 2% growth in revenues and a 23% drop in profit. Unseasonal rains adversely impacted the wood availability, quality and procurement price. The segment witnessed subdued realisation amidst a surge in domestic wood prices and ocean freights. This led to the margin declining by 380 bps. Overall, the company's performance was adversely impacted by subdued demand conditions, unusually heavy rains in certain parts, high food inflation and sharp escalation in certain input costs.With modest gains of nearly 9%, the ITC stock has underperformed the benchmark index over the past year. The ITC stock closed 1.8% lower on Thursday in anticipation of a subdued quarterly show. The actual performance does not offer a strong sign to reverse the lukewarm market sentiment in the near term.