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ITC Ltd Research Report - 21st Jan 2016

FMCG | Published on Nov 03rd 2015


ITC posted a poor set of numbers for 2QFY2016, both on the top-line and bottom-line fronts. The top-line was subdued due to underperformance across segments, barring other FMCG and Hotel businesses, which in turn resulted in a lower profitability of the company. Key highlights: ITC’s net sales for the quarter declined by 1.3% yoy to Rs8,904cr. The Cigarettes business posted a 1.6% yoy growth in net sales to Rs4,317cr, aided by price hikes. A muted sales growth resulted in the Cigarettes business posting a 3.0% yoy growth in its EBIT. The other FMCG business, which posted a 7.1% yoy growth in net sales to Rs2,352cr, posted an EBIT level loss of Rs11cr. The Paperboards and Packaging division posted a de-growth of 2.3% yoy and 13.6% yoy in revenue and segmental EBIT, respectively. Further, the Agri business posted a de-growth of 10.4% yoy in revenue, while its EBIT remained flat on a yoy basis. The Hotels business posted a 10.9% yoy growth in its top-line, while it reported an EBIT level loss of Rs6cr. Overall, the company’s OPM expanded by 132bp yoy to 40.0%, owing to lower raw material costs (down 325bp yoy as a % of sales). Outlook and valuation: We expect ITC to report a top-line and bottom-line CAGR of 6.5% and 7.1% respectively over FY2015-18E. At the current market price, the stock is trading at 22.8x FY2018E EPS. We recommend an accumulate on the stock with a target price of Rs382.

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CMP 337
Target Price 382
Investment Period12 Months

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Shareholding Pattern (%)

Public & Others9.0
Grand Total100.0

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