1QFY2017 Result Update | FMCG
July 22, 2016
ITC
ACCUMULATE
CMP
`250
Performance Highlights
Target Price
`283
Quarterly result (Standalone)
Investment Period
12 Months
(` cr)
1QFY17
1QFY16
% chg
4QFY16
%qoq
Stock Info
Revenue
10,054
9,160
9.8
9,757
3.0
Sector
FMCG
EBITDA
3,526
3,252
8.4
3,608
(2.3)
Market Cap (` cr)
3,01,456
OPM (%)
35.1
35.5
(43bp)
37.0
(191bp)
Net Debt (`
cr)
-14,583
PAT
2,385
2,166
10.1
2,379
0.2
Beta
0.8
Source: Company, Angel Research
52 Week High / Low
259/179
Avg. Daily Volume
7,14,229
ITC posted a healthy set of numbers for 1QFY2017, both on the top-line and the
Face Value (`)
1
bottom-line front. The top-line was strong due to healthy growth in Cigarettes,
BSE Sensex
27,803
other FMCG & Agri businesses which resulted in a higher overall profitability of
Nifty
8,541
the company.
Reuters Code
ITC.BO
Key highlights: ITC’s net sales for the quarter grew by 9.8% yoy to `10,054cr. In
Bloomberg Code
[email protected]
terms of segment wise performance (gross level), the Cigarettes business posted a
6.4% yoy growth in sales to `8,231cr, aided by price hikes and increase in
Shareholding Pattern (%)
volume. The FMCG (Others) business posted a 9.5% yoy growth in sales to
Promoters
0.0
`2,385cr. Further, the Agri business posted a strong sales growth of 20.2% yoy to
MF / Banks / Indian Fls
38.7
`2,794cr. However, the Paperboards & Packaging and Hotel divisions posted a
FII / NRIs / OCBs
51.2
revenue de-growth of 1.6% yoy and 0.2% yoy for the quarter. Overall, the
Indian Public / Others
10.1
company’s OPM contracted by 43bp yoy to 35.1%, owing to increase in raw
material and staff costs.
Abs. (%)
3m
1yr
3yr
Outlook and valuation: We expect ITC to report a top-line and bottom-line CAGR
Sensex
7.1
(1.7)
37.5
of 9.8% and 11.3% respectively over FY2016-18E. At the current market price,
ITC
19.8
14.1
19.9
the stock is trading at 24.6x its FY2018E EPS. We recommend an Accumulate on
the stock with a target price of `283.
3-year price chart
280
Key financials (Standalone)
270
Y/E March (` cr)
FY2015
FY2016E
FY2017E
FY2018E
260
250
240
Net Sales
36,507
36,837
40,059
44,439
230
220
% chg
9.8
0.9
8.7
10.9
210
200
Net Profit (Adj)
9,608
9,845
10,984
12,196
190
180
% chg
9.4
2.5
11.6
11.0
EBITDA (%)
36.9
38.7
39.0
39.2
EPS (`)
8.0
8.1
9.1
10.1
Source: Company, Angel Research
P/E (x)
31.2
30.4
27.3
24.6
P/BV (x)
9.8
8.5
7.4
6.5
RoE (%)
31.3
27.8
27.2
26.5
RoCE (%)
40.6
37.3
35.8
35.1
EV/Sales (x)
7.8
7.6
7.0
6.2
Amarjeet S Maurya
022 - 3935 7800 Ext: 6831
EV/EBITDA (x)
21.1
19.7
17.9
15.9
[email protected]
Source: Company, Angel Research; Note: CMP as of July 21, 2016
Please refer to important disclosures at the end of this report
1
ITC | 1QFY2017 Result Update
Exhibit 1: Quarterly performance (Standalone)
Y/E March (` cr)
1QFY17
1QFY16
% yoy
4QFY16
%qoq
Net Sales
10,054
9,160
9.8
9,757
3.0
Consumption of RM
4,246
3,741
13.5
3,567
19.0
(% of Sales)
42.23
40.84
36.56
Staff Costs
700
627
11.6
551
27.0
(% of Sales)
7.0
6.8
5.7
Other Expenses
1,582
1,539
2.8
2,030
(22.1)
(% of Sales)
15.7
16.8
20.8
Total Expenditure
6,528
5,908
10.5
6,148
6.2
Operating Profit
3,526
3,252
8.4
3,608
(2.3)
OPM
35.1
35.5
(43bp)
37.0
(191bp)
Interest
10
10
(3.4)
12
(17.7)
Depreciation & Ammortisation
261
258
1.4
254
2.8
Other Income
421
356
18.0
371
13.3
PBT (excl. Extraordinary Items)
3,675
3,341
10.0
3,713
(1.0)
Extraordinary Income/(Expense)
-
-
-
PBT (incl. Extraordinary Items)
3,675
3,341
10.0
3,713
(1.0)
(% of Sales)
36.6
36.5
38.1
Provision for Taxation
1,291
1,175
9.9
1,334
(3.3)
(% of PBT)
35.1
35.2
35.9
Reported PAT
2,385
2,166
10.1
2,379
0.2
PATM
24
24
24
Source: Company, Angel Research
July 22, 2016
2
ITC | 1QFY2017 Result Update
Top-line remains healthy
In terms of segment wise performance (gross level), the Cigarettes business posted
a 6.4% yoy growth in sales to `8,231cr, aided by price hikes and increase in
volume. The FMCG (Others) business posted a 9.5% yoy growth in net sales to
`2,385cr. Further, the Agri business posted a strong sales growth of 20.2% yoy to
`2,794cr. However, the Paperboards & Packaging and Hotel divisions posted a
revenue de-growth of 1.6% yoy and 0.2% yoy for the quarter.
Operating profit up 8.4% yoy
The company reported an operating profit of `3,526cr for 1QFY2017, up
8.4% yoy. Further, the company’s OPM contracted by 43bp yoy to 35.1%, owing to
increase in raw material and staff costs.
Exhibit 2: Segment-wise performance (Standalone)
Y/E Mar (` cr)
1QFY17
1QFY16
% yoy
4QFY16
% qoq
Gross Income
Cigarettes
8231
7733
6.4
8545
(3.7)
Others
2385
2178
9.5
2711
(12.0)
Hotels
287
288
(0.2)
363
(20.8)
Agri Business
2794
2325
20.2
1806
54.7
Paperboards & Packaging
1323
1344
(1.6)
1315
0.6
PBIT
Cigarettes
3005
2781
8.0
3019
(0.5)
Others
(5)
(8)
(42.0)
71
(106.4)
Hotels
1
(7)
(116.8)
43
(97.1)
Agri Business
237
234
1.5
170
39.3
Paperboards & Packaging
248
254
(2.7)
203
22.0
PBIT Margin (%)
Cigarettes
36.5
36.0
35.3
Others
(0.2)
(0.4)
2.6
Hotels
0.4
(2.5)
11.7
Agri Business
8.5
10.1
9.4
Paperboards & Packaging
18.7
18.9
15.4
Source: Company, Angel Research
July 22, 2016
3
ITC | 1QFY2017 Result Update
Investment rationale
Cigarettes business to enjoy strong pricing power: We believe ITC’s cigarettes
business is well poised to continue to post a healthy profit growth over
FY2016-18E due to its strong pricing power and improvement in volume.
Non-cigarettes businesses to register healthy growth over FY2016-18E: While
cigarettes remain the main profit center for the company, investments in
the non-cigarettes businesses such as FMCG, Hotels and Paperboards have
given the company a foothold in the respective businesses. We expect these
businesses to play a major role in driving the company’s long-term growth.
Outlook and valuation
We expect ITC to report a top-line and bottom-line CAGR of 9.8% and 11.3%
respectively over FY2016-18E. At the current market price, the stock is trading at
24.6x its FY2018E EPS. We recommend an Accumulate on the stock with a target
price of `283.
Company Background
ITC is a diversified conglomerate, present across various categories - Cigarettes
(41% of revenue); Hotels (3% of revenue); Paperboards and Packaging (13% of
revenue); Agri-business (22% of revenue); and other FMCG (branded apparel,
personal care, stationery, safety matches and specialty papers [21% of revenue])
businesses. Although ITC is a market leader in the cigarettes category, it is rapidly
gaining market share even in its evolving businesses of packaged foods and
confectionery, branded apparel, personal care and stationery.
July 22, 2016
4
ITC | 1QFY2017 Result Update
Profit and loss statement (Standalone)
Y/E March (` cr)
FY13
FY14
FY15
FY16
FY17E
FY18E
Total operating income
29,901
33,239
36,507
36,837
40,059
44,439
% chg
18.9
11.2
9.8
0.9
8.7
10.9
Total Expenditure
19,274
20,784
23,034
22,599
24,436
27,019
Cost of Materials
12,066
13,156
14,672
13,703
14,742
16,220
Personnel
1,387
1,608
1,780
1,884
2,083
2,355
Others
5,821
6,019
6,582
7,013
7,611
8,443
EBITDA
10,628
12,455
13,474
14,238
15,623
17,420
% chg
20.1
17.2
8.2
5.7
9.7
11.5
(% of Net Sales)
35.5
37.5
36.9
38.7
39.0
39.2
Depreciation& Amortisation
796
900
962
1,034
1,123
1,256
EBIT
9,832
11,555
12,512
13,204
14,500
16,164
% chg
20.6
17.5
8.3
5.5
9.8
11.5
(% of Net Sales)
32.9
34.8
34.3
35.8
36.2
36.4
Interest & other Charges
86
3
57
49
55
60
Other Income
939
1,107
1,543
1,804
1,950
2,100
(% of PBT)
8.8
8.7
11.0
12.1
11.9
11.5
Share in profit of Associates
-
-
-
-
-
-
Recurring PBT
10,684
12,659
13,998
14,958
16,395
18,204
% chg
20.1
18.5
10.6
6.9
9.6
11.0
Extraordinary Expense/(Inc.)
-
-
-
-
-
-
PBT (reported)
10,684
12,659
13,998
14,958
16,395
18,204
Tax
3,266
3,874
4,390
5,114
5,410
6,007
(% of PBT)
30.6
30.6
31.4
34.2
33.0
33.0
PAT (reported)
7,418
8,785
9,608
9,845
10,984
12,196
Add: Share of associates
-
-
-
-
-
-
ADJ. PAT
7,418
8,785
9,608
9,845
10,984
12,196
% chg
20.4
18.4
9.4
2.5
11.6
11.0
(% of Net Sales)
24.8
26.4
26.3
26.7
27.4
27.4
Basic EPS (`)
6.1
7.3
8.0
8.1
9.1
10.1
Fully Diluted EPS (`)
6.1
7.3
8.0
8.1
9.1
10.1
% chg
20.4
18.4
9.4
2.5
11.6
11.0
July 22, 2016
5
ITC | 1QFY2017 Result Update
Balance Sheet (Standalone)
Y/E March (` cr)
FY13
FY14
FY15
FY16
FY17E
FY18E
SOURCES OF FUNDS
Equity Share Capital
790
795
802
805
1,208
1,208
Reserves& Surplus
21,498
25,467
29,934
34,561
39,211
44,821
Shareholders Funds
22,288
26,262
30,736
35,366
40,419
46,029
Minority Interest
-
-
-
-
-
-
Total Loans
78
67
53
29
35
40
Deferred Tax Liability
1,706
1,741
2,099
2,099
2,099
2,099
Total Liabilities
24,072
28,070
32,888
37,495
42,553
48,168
APPLICATION OF FUNDS
Gross Block
16,944
18,545
21,727
25,140
28,641
32,143
Less: Acc. Depreciation
5,735
6,532
7,548
8,583
9,706
10,963
Net Block
11,209
12,013
14,178
16,557
18,935
21,181
Capital Work-in-Progress
1,488
2,296
2,114
2,114
2,114
2,114
Investments
7,060
8,823
8,405
12,854
12,854
12,854
Current Assets
14,260
16,097
19,498
19,735
22,528
27,021
Inventories
6,600
7,360
7,837
7,872
8,780
9,984
Sundry Debtors
1,163
2,165
1,722
1,615
1,536
1,705
Cash
3,615
3,289
7,589
6,565
7,805
9,111
Loans & Advances
1,154
1,803
843
1,842
2,404
3,111
Other
1,728
1,480
1,506
1,842
2,003
3,111
Current liabilities
10,448
11,604
11,775
14,234
14,346
15,469
Net Current Assets
3,812
4,494
7,722
5,501
8,182
11,552
Deferred Tax Asset
503
445
468
468
468
468
Mis. Exp. not written off
-
-
-
-
-
-
Total Assets
24,072
28,070
32,888
37,495
42,553
48,168
July 22, 2016
6
ITC | 1QFY2017 Result Update
Cash flow statement (Standalone)
Y/E March (` cr)
FY13
FY14
FY15
FY16
FY17E FY18E
Profit before tax
10,684
12,659
13,998
14,958
16,395
18,204
Depreciation
796
900
962
1,034
1,123
1,256
Change in Working Capital
(1,049)
(1,732)
30
1,280
(1,440)
(2,064)
Interest / Dividend (Net)
(580)
(767)
(1,131)
49
55
60
Direct taxes paid
(2,886)
(3,797)
(4,226)
(5,114)
(5,410)
(6,007)
Others
(255)
(300)
(324)
-
-
-
Cash Flow from Operations
6,710
6,962
9,309
12,208
10,723
11,449
(Inc.)/ Dec. in Fixed Assets
(4,324)
(4,586)
(4,402)
(12,398)
(3,501)
(3,502)
(Inc.)/ Dec. in Investments
(744)
(1,763)
418
(4,449)
-
-
Cash Flow from Investing
(3,581)
(2,823)
(4,820)
(7,949)
(3,501)
(3,502)
Issue of Equity
922
691
979
3
-
-
Inc./(Dec.) in loans
(10)
(11)
(15)
(24)
6
5
Dividend Paid (Incl. Tax)
(3,518)
(4,148)
(4,772)
(5,218)
(5,932)
(6,586)
Interest / Dividend (Net)
273
(996)
3,619
(45)
(55)
(60)
Cash Flow from Financing
(2,333)
(4,465)
(190)
(5,284)
(5,981)
(6,641)
Inc./(Dec.) in Cash
796
(326)
4,299
(1,024)
1,241
1,306
Opening Cash balances
2,819
3,615
3,289
7,589
6,565
7,805
Closing Cash balances
3,615
3,289
7,589
6,565
7,805
9,111
July 22, 2016
7
ITC | 1QFY2017 Result Update
Key ratios
Y/E March
FY13
FY14
FY15
FY16
FY17E
FY18E
Valuation Ratio (x)
P/E (on FDEPS)
40.4
34.1
31.2
30.4
27.3
24.6
P/CEPS
36.5
30.9
28.3
27.5
24.7
22.3
P/BV
13.5
11.4
9.8
8.5
7.4
6.5
Dividend yield (%)
2.1
2.4
1.7
1.7
2.0
2.2
EV/Sales
9.7
8.7
7.8
7.6
7.0
6.2
EV/EBITDA
27.2
23.1
21.1
19.7
17.9
15.9
EV / Total Assets
8.4
7.2
6.4
5.4
4.9
4.4
Per Share Data (`)
EPS (Basic)
6.1
7.3
8.0
8.1
9.1
10.1
EPS (fully diluted)
6.1
7.3
8.0
8.1
9.1
10.1
Cash EPS
6.8
8.0
8.7
9.0
10.0
11.1
DPS
5.3
6.0
4.1
4.3
4.9
5.5
Book Value
18.4
21.7
25.4
29.2
33.4
38.1
Returns (%)
RoCE
44.0
43.9
40.6
37.3
35.8
35.1
Angel RoIC (Pre-tax)
84.1
81.3
84.6
82.6
73.3
67.1
RoE
33.3
33.5
31.3
27.8
27.2
26.5
Turnover ratios (x)
Asset Turnover
1.8
1.8
1.7
1.5
1.4
1.4
Inventory / Sales (days)
81
81
78
78
80
82
Receivables (days)
14
24
17
16
14
14
Payables (days)
24
25
22
24
26
26
Net Working capital (days)
71
79
74
70
68
70
July 22, 2016
8
ITC | 1QFY2017 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
DISCLAIMER
Angel Broking Private Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited,
Bombay Stock Exchange Limited and Metropolitan Stock Exchange Limited. It is also registered as a Depository Participant with CDSL
and Portfolio Manager with SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking Private Limited is a
registered entity with SEBI for Research Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration number
INH000000164. Angel or its associates has not been debarred/ suspended by SEBI or any other regulatory authority for accessing
/dealing in securities Market. Angel or its associates/analyst has not received any compensation / managed or co-managed public
offering of securities of the company covered by Analyst during the past twelve months.
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should
make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the
companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine
the merits and risks of such an investment.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
fundamentals. Investors are advised to refer the Fundamental and Technical Research Reports available on our website to evaluate the
contrary view, if any.
The information in this document has been printed on the basis of publicly available information, internal data and other reliable
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Disclosure of Interest Statement
ITC
1. Financial interest of research analyst or Angel or his Associate or his relative
No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives
No
3. Served as an officer, director or employee of the company covered under Research
No
4. Broking relationship with company covered under Research
No
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
July 22, 2016
9