ITC declared steady top-line growth of 14.2% yoy to `6,195cr, marginally below estimates. The cigarette division grew revenues 11.0% with higher value growth. Losses in the non-cigarette FMCG business declined. Earnings grew 22.5% to `1,701cr, aided by steady revenues, lower taxes and higher other income. Segment performances were mixed - cigarettes grew double-digits while hotels were flat; agri and paperboards grew over 10% each. The company maintained its revenue and earnings estimates for FY2012.
ITC declared steady top-line growth of 14.2% yoy to `6,195cr, marginally below estimates. The cigarette division grew revenues 11.0% with higher value growth. Losses in the non-cigarette FMCG business declined. Earnings grew 22.5% to `1,701cr, aided by steady revenues, lower taxes and higher other income. Segment performances were mixed - cigarettes grew double-digits while hotels were flat; agri and paperboards grew over 10% each. The company maintained its revenue and earnings estimates for FY2012.
ITC declared steady top-line growth of 14.2% yoy to `6,195cr, marginally below estimates. The cigarette division grew revenues 11.0% with higher value growth. Losses in the non-cigarette FMCG business declined. Earnings grew 22.5% to `1,701cr, aided by steady revenues, lower taxes and higher other income. Segment performances were mixed - cigarettes grew double-digits while hotels were flat; agri and paperboards grew over 10% each. The company maintained its revenue and earnings estimates for FY2012.
ITC declared steady top-line growth of 14.2% yoy to `6,195cr, marginally below estimates. The cigarette division grew revenues 11.0% with higher value growth. Losses in the non-cigarette FMCG business declined. Earnings grew 22.5% to `1,701cr, aided by steady revenues, lower taxes and higher other income. Segment performances were mixed - cigarettes grew double-digits while hotels were flat; agri and paperboards grew over 10% each. The company maintained its revenue and earnings estimates for FY2012.
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3QFY2012 Result Update | FMCG
February 2, 2012
ITC Performance Highlights (` cr) Revenue EBITDA OPM (%) PAT Source: Company, Angel Research
Investment Period Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others Abs. (%) Sensex ITC
For 3QFY2012, ITC declared steady growth in its top line and earnings (broadly in-line with our estimates). We recommend Accumulate on the stock. Key highlights: During the quarter, ITC declared top-line growth of 14.2% yoy to `6,195cr (`5,424cr), marginally below our estimates. The cigarette division registered 11.0% yoy growth in gross revenue (16.6% yoy growth in net revenue) on the back of higher value growth in cigarettes. Amongst other segments, at net level, agri-business, paperboards and packaging posted growth of 6.8% yoy, 11.5% yoy respectively, while hotels posted a decline of 1.0% yoy. Non-cigarette FMCG business grew by robust ~25% yoy. Earnings for the quarter grew by robust 22.5% yoy to `1,701cr (`1,389cr), in line with our estimates. The company has been successful in reducing its losses in the non-cigarette FMCG business loss during 3QFY2012 stood at ~`47cr (`74cr). Outlook and valuation: Post 3QFY2012, we maintain our revenue and earnings estimates. We expect ITC to report a top line of `24,706cr in FY2012E and `29,294cr in FY2013E, registering a CAGR of ~17% over FY2011-13E. Growth would be driven by the companys diversified business model and ability to invest in growing businesses. In terms of earnings, we expect the company to report a 17.4% CAGR over the same period, backed by good performance by all businesses. At the CMP of `199, the stock is trading at 22.5x FY2013E EPS. We recommend Accumulate on the stock with a target price of `219, based on our SOTP valuation. Key financials Y/E March (` cr) Net Sales % chg Net Profit (Adj) % chg EBITDA (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x) Source: Company, Angel Research
ITC declared top-line growth of 14.2% yoy to `6,195cr (`5,424cr), marginally below our estimates. The cigarette division registered 11.0% yoy growth in gross revenue (16.6% yoy growth in net revenue) on the back of higher value growth in cigarettes. The company has been successful in reducing its losses in the noncigarette FMCG business loss during 3QFY2012 stood at ~`47cr (`74cr).
Amongst other segments, at net level, agri-business, paperboards and packaging posted growth of 6.8% yoy, 11.5% yoy respectively, while hotels posted a decline of 1.0% yoy. Non-cigarette FMCG business grew by robust ~25% yoy.
Earnings grew by robust 22.5% yoy, aided by high other income
Earnings for the quarter grew by robust 22.5% yoy to `1,701cr (`1,389cr), marginally above our estimates, driven by steady top-line growth, a 30bp yoy decline in tax rate and a 40% yoy jump in other income to `338cr (`241cr). Operating margin expanded during the quarter, as ITC witnessed of decrease in raw-material prices. OPM increased by 128bp yoy due to a 205bp yoy gross margin expansion.
Exhibit 4: Strong earnings growth rate at 21.5% yoy
Cigarettes Others Hotels Agri Business Paperboards & Packaging
Total PBIT Less: Interest Exp Less: Other Unallocable Exp
PBT PBIT Margin (%)
Cigarettes Others Hotels Agri Business Paperboards & Packaging Source: Company, Angel Research
February 2, 2012
ITC | 3QFY2012 Result Update
Cigarette segment registered double-digit sales and EBIT growth
ITCs cigarette division registered 11% yoy growth in gross revenue (16.6% yoy growth in net revenue) on the back of higher value growth due to price hikes taken in cigarettes. On the margin front, the cigarette divisions EBIT margin registered a 247bp expansion on a gross level (107bp expansion on net level), aided by price hikes. We believe the cigarette business is poised for double-digit growth in terms of revenue and EBIT in FY2013E.
Exhibit 7: Peg cigarette division to grow at a 17% CAGR in FY2011-13E
ITCs non-cigarette FMCG business registered steady revenue growth of 24.4% yoy at net level to `1,371cr (`1,102cr), driven by impressive performance from all product categories. Also, losses of the business reduced to `47cr (`74cr). Going ahead, we expect revenue traction in the segment to continue and losses to reduce, though breakeven is likely to be achieved only in FY2013.
ITCs hotels business at net level registered flat growth of 2.6% yoy to `311cr (`303cr) during the quarter due to a weak global economic scenario and slowdown in the Indian economy. The business segment reported EBIT margin of 32.7% (expansion of 349bp yoy), driving modest 14.8% yoy growth in EBIT. We believe the hotels business is well on track to post a 21% CAGR in revenue during FY2011-13E, aided by low base and uptick in the economic activity. Moreover, the margin of the business is likely to register significant improvement as ARR recovers.
The paperboard and packaging business registered steady revenue growth of 12.4% yoy (11.5% on a net level) to `1,030cr (`917cr). EBIT margin of the segment registered an impressive expansion of 89bp yoy to 21.8%, driven by a combination of better product mix and higher realization.
Exhibit 12: 9-10% revenue contribution in FY12-13E
1,200 1,000 800 (`cr)
Exhibit 13: Margin to sustain at ~23% over FY12-13E
Agri business registers weak revenue growth of 6.8% yoy
ITCs agri business registered 6.8% yoy growth in revenue to `1,139cr (`1,067cr). The business segment reported decline in EBIT margin to 12.4%, aiding flat growth in EBIT.
Investment rationale Cigarettes to grow by double digits and post impressive EBIT margin: We believe the cigarette business is well poised to post double-digit sales and EBIT growth in FY2013E. The company has taken prices hikes in brands such as Classic and Navy cut and is expected to hike prices of the Gold Flake brand. This will aid in higher realization. Non-cigarette FMCG to register a ~20% CAGR over FY2011-13E: While cigarettes remain the main profit center for the company, investments in non-cigarette businesses such as FMCG, hotels and paperboards have started yielding positive contribution. During FY2011-13E, we expect non-cigarette EBIT to register a ~20% CAGR, aided by 1) reduction in non-cigarette FMCG losses (likely breakeven in FY2013); 2) improvement in hotel margins, aided by higher ARRs and uptick in the economy; and 3) higher margins in the paperboards and packaging business.
Outlook and valuation
Post 3QFY2012, we maintain our revenue and earnings estimates. We expect ITC to report a top line of `24,706cr in FY2012E and `29,294cr in FY2013E, registering a CAGR of ~17% over FY2011-13E. Growth would be driven by the companys diversified business model and ability to invest in growing businesses. In terms of earnings, we expect the company to report a `17.4% CAGR over the same period, backed by good performance by all businesses. At the CMP of `199, the stock is trading at 22.5x FY2013E EPS. We recommend Accumulate on the stock with a target price of `219, based on our SOTP valuation.
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
ITC No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
