2QFY2015 Result Update | FMCG
November 3, 2015
ITC
ACCUMULATE
CMP
`337
Performance Highlights
Target Price
`382
Quarterly result (Standalone)
Investment Period
12 Months
(` cr)
2QFY16
2QFY15
% chg
1QFY16
%qoq
Stock Info
Revenue
8,904
9,024
(1.3)
8,588
3.7
Sector
FMCG
EBITDA
3,560
3,489
2.0
3,386
5.1
Market Cap (` cr)
2,70,773
OPM (%)
40.0
38.7
132bp
39.4
56bp
Net Debt (` cr)
-15,928
PAT
2,431
2,425
0.3
2,265
7.3
Beta
0.8
Source: Company, Angel Research
52 Week High / Low
410/295
Avg. Daily Volume
5,22,748
ITC posted a poor set of numbers for 2QFY2016, both on the top-line and
Face Value (`)
1
bottom-line fronts. The top-line was subdued due to underperformance across
BSE Sensex
26,559
segments, barring other FMCG and Hotel businesses, which in turn resulted in a
Nifty
8,051
lower profitability of the company.
Reuters Code
ITC.BO
Key highlights: ITC’s net sales for the quarter declined by 1.3% yoy to `8,904cr.
Bloomberg Code
[email protected]
The Cigarettes business posted a 1.6% yoy growth in net sales to `4,317cr, aided
by price hikes. A muted sales growth resulted in the Cigarettes business posting a
Shareholding Pattern (%)
3.0% yoy growth in its EBIT. The other FMCG business, which posted a 7.1% yoy
Promoters
0.0
growth in net sales to `2,352cr, posted an EBIT level loss of `11cr. The
MF / Banks / Indian Fls
20.7
Paperboards and Packaging division posted a de-growth of 2.3% yoy and 13.6%
FII / NRIs / OCBs
35.1
yoy in revenue and segmental EBIT, respectively. Further, the Agri business posted
Indian Public / Others
44.2
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
Abs. (%)
3m 1yr
3yr
EBIT level loss of `6cr. Overall, the company’s OPM expanded by 132bp yoy to
Sensex
15.5
33.9
20.1
40.0%, owing to lower raw material costs (down 325bp yoy as a % of sales).
ITC
3.4
4.3
41.6
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
3-year price chart
stock is trading at 22.8x FY2018E EPS. We recommend an accumulate on the
410
stock with a target price of `382.
390
370
Key financials (Standalone)
350
Y/E March (` cr)
FY2015
FY2016E
FY2017E
FY2018E
330
310
Net Sales
36,507
38,237
40,623
44,077
290
% chg
9.8
4.7
6.2
8.5
270
Net Profit (Adj)
9,608
10,164
10,873
11,792
250
% chg
9.4
5.8
7.0
8.4
EBITDA (%)
36.9
37.1
37.2
37.3
Source: Company, Angel Research
EPS (`)
12.0
12.7
13.5
14.7
P/E (x)
28.0
26.5
24.7
22.8
P/BV (x)
8.8
7.6
6.6
5.9
RoE (%)
31.3
28.6
26.8
25.7
RoCE (%)
40.6
37.0
34.5
33.0
Amarjeet S Maurya
EV/Sales (x)
6.9
6.6
6.2
5.7
022 - 3935 7800 Ext: 6831
EV/EBITDA (x)
18.8
17.8
16.7
15.3
[email protected]
Source: Company, Angel Research; Note: CMP as of November 2, 2015
Please refer to important disclosures at the end of this report
1
ITC | 2QFY2015 Result Update
Exhibit 1: Quarterly performance (Standalone)
Y/E March (` cr)
2QFY16
2QFY15
% yoy
1QFY16
%qoq
FY2015
FY2014
% chg
Net Sales
8,904
9,024
(1.3)
8,588
3.7
36,507
33,239
9.8
Consumption of RM
3,219
3,555
(9.5)
3,169
1.6
14,672
13,156
11.5
(% of Sales)
36.15
39.40
36.90
40.2
39.6
Staff Costs
451
398
13.3
517
(12.9)
1,780
1,608
10.7
(% of Sales)
5.1
4.4
6.0
4.9
4.8
Other Expenses
1,674
1,582
5.8
1,515
10.5
6,582
6,019
9.4
(% of Sales)
18.8
17.5
17.6
18.0
18.1
Total Expenditure
5,344
5,535
(3.4)
5,202
2.7
23,034
20,784
10.8
Operating Profit
3,560
3,489
2.0
3,386
5.1
13,474
12,455
8.2
OPM
40.0
38.7
132
39.4
56
36.9
37.5
(56.5)
Interest
10
18
(43.9)
10
(1.4)
57
3
1,846.4
Depreciation & Amortization
259
243
6.4
258
0.2
962
1,107
(13.1)
Other Income
399
356
12.1
315
26.7
1,543
971
58.9
PBT (excl. Extraordinary Items)
3,690
3,583
3.0
3,432
7.5
13,998
12,316
13.7
Extraordinary Income/(Expense)
-
-
-
-
PBT (incl. Extraordinary Items)
3,690
3,583
3.0
3,432
7.5
13,998
12,316
13.7
(% of Sales)
41.4
39.7
40.0
38.3
37.1
Provision for Taxation
1,259
1,158
8.7
1,167
7.9
4,390
3,874
13.3
(% of PBT)
34.1
32.3
34.0
31.4
31.5
Reported PAT
2,431
2,425
0.3
2,265
7.3
9,608
8,442
13.8
PATM
27
27
26
26
25
EPS (`)
3.0
3.0
0.3
2.8
7.3
12.0
10.5
13.8
Source: Company, Angel Research
November 3, 2015
2
ITC | 2QFY2015 Result Update
Top-line flat
ITC’s net sales for the quarter declined by 1.3% yoy to `8,904cr. The Cigarettes
business posted a 1.6% yoy growth in net sales to `4,317cr, 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 `2,352cr, posted an EBIT level loss of `11cr. 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 `6cr.
Exhibit 2: Top-line was flat
9,000
30.0
8,000
25.0
7,000
20.0
6,000
15.0
5,000
10.0
4,000
5.0
3,000
-
2,000
1,000
(5.0)
-
(10.0)
Top-line (LHS)
yoy growth (RHS)
Source: Company, Angel Research
Exhibit 3: OPM increases by 132bp yoy to 40.0%
Exhibit 4: Earnings growth at 0.3% yoy
70
63.1
63.9
3,000
18.2
20.0
60.6
61.1
60.6
16.3
57.7
57
15.6
60
2,500
53
15.0
2,000
50
10.5
40.0
8.7
38.7
38.7
39.4
1,500
10.0
36.9
40
34
35.4
34.9
3.7
3.6
0.3
1,000
5.0
30
500
20
-
-
OPM
Gross margin
PAT (LHS)
yoy growth (RHS)
Source: Company, Angel Research
Source: Company, Angel Research
Operating profit up 2.0 % yoy
The company reported an operating profit of `3,560cr for 2QFY2016, up
marginally by 2.0% yoy. However, the company’s OPM expanded by 132bp yoy to
40.0%, owing to lower raw material costs (down 325bp yoy as a % of sales).
November 3, 2015
3
ITC | 2QFY2015 Result Update
Exhibit 5: Segment-wise performance (Standalone)
Y/E Mar (` cr)
2QFY16
2QFY15
% yoy 1QFY15
% qoq FY2015 FY2014
% chg
Net Income
Cigarettes
4,317
4,251
1.6
4,150
4.0
16,805
15,456
8.7
Others
2,352
2,196
7.1
2,171
8.3
9,011
8,099
11.3
Hotels
290
262
10.9
288
0.8
1,187
1,133
4.8
Agri Business
1,844
2,059
(10.4)
2,325
(20.7)
8,380
7,752
8.1
Paperboards & Packaging
1,254
1,284
(2.3)
1,265
(0.9)
4,974
4,861
2.3
PBIT
Cigarettes
2,969
2,882
3.0
2,781
6.8
11,196
10,016
11.8
Others
(11)
(10)
7.7
(8)
39.3
34
22
56.2
Hotels
(6)
(10)
(42.2)
(7)
(23.6)
49
140
(64.9)
Agri Business
294
298
(1.4)
234
25.7
904
835
8.3
Paperboards & Packaging
209
242
(13.6)
254
(17.8)
921
892
3.3
PBIT Margin (%)
Cigarettes
68.8
67.8
62.6
66.6
64.8
Others
(0.5)
(0.5)
1.9
0.4
0.3
Hotels
(1.9)
(3.7)
18.7
4.1
12.3
Agri Business
15.9
14.5
7.3
10.8
10.8
Paperboards & Packaging
16.7
18.9
15.0
18.5
18.4
Source: Company, Angel Research
November 3, 2015
4
ITC | 2QFY2015 Result Update
Investment rationale
Cigarettes business to enjoy strong pricing power: We believe ITC’s cigarette
business is well poised to continue to post a healthy profit growth over
FY2015-17E due to its strong pricing power and improvement in volume
growth.
Non-cigarette businesses to register healthy growth FY2015-17E: While
cigarettes remain the main profit center for the company, investments in
the non-cigarette 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
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 `382.
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).
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.
November 3, 2015
5
ITC | 2QFY2015 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
38,237
40,623
44,077
% chg
18.9
11.2
9.8
4.7
6.2
8.5
Total Expenditure
19,274
20,784
23,034
24,051
25,511
27,636
Cost of Materials
12,066
13,156
14,672
15,562
16,655
18,071
Personnel
1,387
1,608
1,780
1,912
2,072
2,248
Others
5,821
6,019
6,582
6,577
6,784
7,317
EBITDA
10,628
12,455
13,474
14,186
15,112
16,441
% chg
20.1
17.2
8.2
5.3
6.5
8.8
(% of Net Sales)
35.5
37.5
36.9
37.1
37.2
37.3
Depreciation& Amortisation
796
900
962
1,038
1,123
1,256
EBIT
9,832
11,555
12,512
13,148
13,988
15,184
% chg
20.6
17.5
8.3
5.1
6.4
8.5
(% of Net Sales)
32.9
34.8
34.3
34.4
34.4
34.4
Interest & other Charges
86
3
57
60
65
70
Other Income
939
1,107
1,543
1,750
1,950
2,100
(% of PBT)
8.8
8.7
11.0
11.8
12.3
12.2
Share in profit of Associates
-
-
-
-
-
-
Recurring PBT
10,684
12,659
13,998
14,838
15,874
17,214
% chg
20.1
18.5
10.6
6.0
7.0
8.4
Extraordinary Expense/(Inc.)
-
-
-
-
-
-
PBT (reported)
10,684
12,659
13,998
14,838
15,874
17,214
Tax
3,266
3,874
4,390
4,674
5,000
5,422
(% of PBT)
30.6
30.6
31.4
31.5
31.5
31.5
PAT (reported)
7,418
8,785
9,608
10,164
10,873
11,792
Add: Share of associates
-
-
-
-
-
-
ADJ. PAT
7,418
8,785
9,608
10,164
10,873
11,792
% chg
20.4
18.4
9.4
5.8
7.0
8.4
(% of Net Sales)
24.8
26.4
26.3
26.6
26.8
26.8
Basic EPS (`)
9.2
10.9
12.0
12.7
13.5
14.7
Fully Diluted EPS (`)
9.2
10.9
12.0
12.7
13.5
14.7
% chg
20.4
18.4
9.4
5.8
7.0
8.4
November 3, 2015
6
ITC | 2QFY2015 Result Update
Balance Sheet (Standalone)
Y/E March (` cr)
FY13
FY14
FY15
FY16
FY17E FY18E
SOURCES OF FUNDS
Equity Share Capital
790
795
802
802
802
802
Reserves& Surplus
21,498
25,467
29,934
34,711
39,713
45,137
Shareholders Funds
22,288
26,262
30,736
35,513
40,515
45,939
Minority Interest
-
-
-
-
-
-
Total Loans
78
67
53
66
67
67
Deferred Tax Liability
1,706
1,741
2,099
2,099
2,099
2,099
Total Liabilities
24,072
28,070
32,888
37,678
42,681
48,105
APPLICATION OF FUNDS
Gross Block
16,944
18,545
21,727
25,144
28,645
32,147
Less: Acc. Depreciation
5,735
6,532
7,548
8,587
9,710
10,966
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
8,405
8,405
8,405
Current Assets
14,260
16,097
19,498
21,633
23,918
27,801
Inventories
6,600
7,360
7,837
8,171
8,904
9,902
Sundry Debtors
1,163
2,165
1,722
2,095
2,782
3,260
Cash
3,615
3,289
7,589
7,543
7,764
8,468
Loans & Advances
1,154
1,803
843
1,912
2,437
3,085
Other
1,728
1,480
1,506
1,912
2,031
3,085
Current liabilities
10,448
11,604
11,775
11,500
11,160
11,864
Net Current Assets
3,812
4,494
7,722
10,133
12,758
15,937
Deferred Tax Asset
503
445
468
468
468
468
Mis. Exp. not written off
-
-
-
-
-
-
Total Assets
24,072
28,070
32,888
37,678
42,681
48,105
November 3, 2015
7
ITC | 2QFY2015 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
14,838
15,874
17,214
Depreciation
796
900
962
1,038
1,123
1,256
Change in Working Capital
(1,049)
(1,732)
30
(2,373)
(2,405)
(2,474)
Interest / Dividend (Net)
(580)
(767)
(1,131)
60
65
70
Direct taxes paid
(2,886)
(3,797)
(4,226)
(4,674)
(5,000)
(5,422)
Others
(255)
(300)
(324)
-
-
-
Cash Flow from Operations
6,710
6,962
9,309
8,889
9,657
10,644
(Inc.)/ Dec. in Fixed Assets
(4,324)
(4,586)
(4,402)
(3,500)
(3,501)
(3,502)
(Inc.)/ Dec. in Investments
(744)
(1,763)
418
-
-
-
Cash Flow from Investing
(3,581)
(2,823)
(4,820)
(3,500)
(3,501)
(3,502)
Issue of Equity
922
691
979
-
-
-
Inc./(Dec.) in loans
(10)
(11)
(15)
13
1
-
Dividend Paid (Incl. Tax)
(3,518)
(4,148)
(4,772)
(5,387)
(5,872)
(6,367)
Interest / Dividend (Net)
273
(996)
3,619
(60)
(65)
(70)
Cash Flow from Financing
(2,333)
(4,465)
(190)
(5,434)
(5,936)
(6,437)
Inc./(Dec.) in Cash
796
(326)
4,299
(45)
220
704
Opening Cash balances
2,819
3,615
3,289
7,589
7,543
7,764
Closing Cash balances
3,615
3,289
7,589
7,543
7,764
8,468
November 3, 2015
8
ITC | 2QFY2015 Result Update
Key ratios
Y/E March
FY13
FY14
FY15
FY16
FY17E
FY18E
Valuation Ratio (x)
P/E (on FDEPS)
36.2
30.6
28.0
26.5
24.7
22.8
P/CEPS
32.7
27.8
25.4
24.0
22.4
20.6
P/BV
12.1
10.3
8.8
7.6
6.6
5.9
Dividend yield (%)
1.6
1.8
1.9
2.0
2.2
2.4
EV/Sales
8.6
7.7
6.9
6.6
6.2
5.7
EV/EBITDA
24.3
20.6
18.8
17.8
16.7
15.3
EV / Total Assets
7.5
6.5
5.7
5.1
4.7
4.2
Per Share Data (`)
EPS (Basic)
9.2
10.9
12.0
12.7
13.5
14.7
EPS (fully diluted)
9.2
10.9
12.0
12.7
13.5
14.7
Cash EPS
10.2
12.1
13.2
14.0
14.9
16.3
DPS
5.3
6.0
6.2
6.7
7.3
7.9
Book Value
27.7
32.7
38.2
44.2
50.4
57.2
Returns (%)
RoCE
44.0
43.9
40.6
37.0
34.5
33.0
Angel RoIC (Pre-tax)
84.1
81.3
84.6
67.0
57.3
52.1
RoE
33.3
33.5
31.3
28.6
26.8
25.7
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
20
25
27
Payables (days)
24
25
22
24
26
26
Net Working capital (days)
71
79
74
74
79
83
November 3, 2015
9
ITC | 2QFY2015 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 of India 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 including its relatives/analyst do not hold any financial interest/beneficial
ownership of more than 1% in the company covered by Analyst. 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. Angel/analyst
has not served as an officer, director or employee of company covered by Analyst and has not been engaged in market making activity
of the company covered by Analyst.
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.
The information in this document has been printed on the basis of publicly available information, internal data and other reliable
sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this
document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way
responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.
Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot
testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document.
While Angel Broking Pvt. Limited endeavors to update on a reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing so.
This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,
redistributed or passed on, directly or indirectly.
Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from
or in connection with the use of this information.
Note: Please refer to the important ‘Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the
latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may
have investment positions in the stocks recommended in this report.
Disclosure of Interest Statement
ITC
1. Analyst ownership of the stock
No
2. Angel and its Group companies ownership of the stock
No
3. Angel and its Group companies' Directors ownership of the stock
No
4. Broking relationship with company covered
No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
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)
November 3, 2015
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