2QFY2017 Result Update | FMCG
November 2, 2016
ITC
BUY
CMP
`240
Performance Highlights
Target Price
`284
Quarterly result (Standalone)
Investment Period
12 Months
(` cr)
2QFY17
2QFY16
% yoy
1QFY17
%qoq
Stock Info
Revenue
9,661
8,799
9.8
10,054
(3.9)
Sector
FMCG
EBITDA
3,630
3,383
7.3
3,526
2.9
Market Cap (` cr)
265,518
OPM (%)
37.6
38.4
(87bp)
35.1
250bp
Net Debt (` cr)
(19,376)
PAT
2,500
2,263
10.5
2,385
4.8
Beta
0.8
52 Week High / Low
266/179
Source: Company, Angel Research
Avg. Daily Volume
1,364,529
ITC posted a healthy set of numbers for 2QFY2017, both on the top-line and the
Face Value (`)
1
bottom-line front. The top-line was healthy due to decent growth in cigarettes and
BSE Sensex
27,877
other FMCG businesses, which resulted in a higher overall profitability of the
Nifty
8,626
Reuters Code
ITC.BO
company.
Bloomberg Code
[email protected]
Key highlights: ITC’s net sales for the quarter grew by 9.8% yoy to `9,661cr. In
terms of segment wise performance (gross level), the cigarettes business posted a
Shareholding Pattern (%)
growth of 7.1% yoy in sales to `8,528cr, aided by price hike and increase in
Promoters
0.0
volume (which grew by 3% yoy during the quarter). The other FMCG businesses
MF / Banks / Indian Fls
38.7
posted a growth of 13.3% yoy in sales to `2,672cr. However, the paperboards &
FII / NRIs / OCBs
51.2
packaging, hotel divisions and agri business posted a flat growth on revenue
Indian Public / Others
10.1
front, during the quarter. Overall, the company’s OPM declined by 87bp yoy to
37.6%, owing to increase in raw material and staff costs.
Abs. (%)
3m
1yr
3yr
Sensex
0.3
4.8
32.8
Outlook and valuation: We expect ITC to report a top-line and bottom-line CAGR
ITC
(4.2)
8.4
9.5
of 10% and 15%, respectively, over FY2016-18E. At the current market price, the
stock is trading at 23.7x its FY2018E EPS. We recommend a Buy rating on the
3-year price chart
stock with a target price of `284.
290
Key financials (Standalone)
270
Y/E March (` cr)
FY2015
FY2016
FY2017E
FY2018E
250
230
Net Sales
36,507
36,583
40,059
44,439
210
% chg
9.8
0.2
9.5
10.9
190
Net Profit (Adj)
9,608
9,311
10,846
12,243
170
150
% chg
9.4
(3.1)
16.5
12.9
EBITDA (%)
36.9
37.5
38.3
39.2
EPS (`)
8.0
7.7
9.0
10.1
Source: Company, Angel Research
P/E (x)
30.2
31.1
26.7
23.7
P/BV (x)
9.4
8.8
7.5
6.5
RoE (%)
31.3
28.3
27.8
27.5
RoCE (%)
40.6
38.5
36.7
36.4
EV/Sales (x)
7.5
7.4
6.7
6.1
Amarjeet S Maurya
022 - 3935 7800 Ext: 6831
EV/EBITDA (x)
20.3
19.7
17.6
15.5
[email protected]
Source: Company, Angel Research; Note: CMP as of November 1, 2016
Please refer to important disclosures at the end of this report
1
ITC | 2QFY2017 Result Update
Exhibit 1: Quarterly performance (Standalone)
Y/E March (` cr)
2QFY17
2QFY16
% yoy
1QFY17
%qoq
Net Sales
9,661
8,799
9.8
10,054
(3.9)
Consumption of RM
3671.35
3113.48
17.9
4,246
(13.5)
(% of Sales)
38.00
35.38
42.23
Staff Costs
600
578
3.9
700
(14.3)
(% of Sales)
6.2
6.6
7.0
Other Expenses
1,759
1,725
2.0
1,582
11.2
(% of Sales)
18.2
19.6
15.7
Total Expenditure
6,031
5,416
11.3
6,528
(7.6)
Operating Profit
3,630
3,383
7.3
3,526
2.9
OPM
37.6
38.4
-87
35.1
250
Interest
11
10
4.0
10
6.1
Depreciation & Ammortisation
268
258
4.0
261
2.8
Other Income
475
393
21.1
421
13.0
PBT (excl. Extraordinary Items)
3,826
3,507
9.1
3,675
4.1
Extraordinary Income/(Expense)
-
-
-
PBT (incl. Extraordinary Items)
3,826
3,507
9.1
3,675
4.1
(% of Sales)
39.6
39.9
36.6
Provision for Taxation
1,326
1,244
6.6
1,291
2.7
(% of PBT)
34.7
35.5
35.1
Reported PAT
2,500
2,263
10.5
2,385
4.8
PATM
26
26
24
Source: Company, Angel Research
November 2, 2016
2
ITC | 2QFY2017 Result Update
Top-line remains healthy
In terms of segment wise performance (gross level), the cigarettes business posted
a growth of 7.1% yoy in sales to `8,528cr, aided by price hikes and increase in
volume (which grew 3% yoy during the quarter). The other FMCG businesses
posted a growth of 13.3% yoy in sales to `2,672cr. However, the paperboards &
packaging, hotel divisions and agri business posted a flat growth on revenue front,
during the quarter.
Operating profit up 7.3% yoy
The company reported an operating profit of `3,630cr during 2QFY2017, up
by 7.3% yoy. Further, the company’s OPM declined by 83bp yoy to 37.6%, owing
to increase in raw material and staff costs.
Exhibit 2: Segment-wise performance (Standalone)
Y/E Mar (` cr)
2QFY17
2QFY16
% yoy
1QFY17
% qoq
Gross Income
Cigarettes
8,528
7,963
7.1
8,231
3.6
Others
2,672
2,358
13.3
2,385
12.0
Hotels
297
290
2.5
287
3.5
Agri Business
1,880
1,844
2.0
2,794
(32.7)
Paperboards & Packaging
1,331
1,331
0.0
1,323
0.6
PBIT
Cigarettes
3,217
2,969
8.4
3,005
7.1
Others
(3)
(11)
-
(5)
-
Hotels
1
(6)
-
1
-
Agri Business
297
294
1.0
237
25.1
Paperboards & Packaging
232
209
10.8
248
(6.4)
PBIT Margin (%)
Cigarettes
37.7
37.3
36.5
Others
(0.1)
(0.5)
(0.2)
Hotels
0.2
(1.9)
0.4
Agri Business
15.8
15.9
8.5
Paperboards & Packaging
17.4
15.7
18.7
Source: Company, Angel Research
November 2, 2016
3
ITC | 2QFY2017 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 10% and 15%,
respectively, over FY2016-18E. At the current market price, the stock is trading at
23.7x its FY2018E EPS. We recommend a Buy rating on the stock with a target
price of `284.
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 businesses (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 2, 2016
4
ITC | 2QFY2017 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
36,583
40,059
44,439
% chg
18.9
11.2
9.8
0.2
9.5
10.9
Total Expenditure
19,274
20,784
23,034
22,865
24,716
27,019
Cost of Materials
12,066
13,156
14,672
13,450
14,742
16,220
Personnel
1,387
1,608
1,780
2,328
2,083
2,355
Others
5,821
6,019
6,582
7,086
7,892
8,443
EBITDA
10,628
12,455
13,474
13,718
15,342
17,420
% chg
20.1
17.2
8.2
1.8
11.8
13.5
(% of Net Sales)
35.5
37.5
36.9
37.5
38.3
39.2
Depreciation& Amortisation
796
900
962
1,032
1,049
1,187
EBIT
9,832
11,555
12,512
12,686
14,293
16,233
% chg
20.6
17.5
8.3
1.4
12.7
13.6
(% of Net Sales)
32.9
34.8
34.3
34.7
35.7
36.5
Interest & other Charges
86
3
57
49
55
60
Other Income
939
1,107
1,543
1,769
1,950
2,100
(% of PBT)
8.8
8.7
11.0
12.3
12.0
11.5
Share in profit of Associates
-
-
-
-
-
-
Recurring PBT
10,684
12,659
13,998
14,406
16,188
18,273
% chg
20.1
18.5
10.6
2.9
12.4
12.9
Extraordinary Expense/(Inc.)
-
-
-
-
-
-
PBT (reported)
10,684
12,659
13,998
14,406
16,188
18,273
Tax
3,266
3,874
4,390
5,095
5,342
6,030
(% of PBT)
30.6
30.6
31.4
35.4
33.0
33.0
PAT (reported)
7,418
8,785
9,608
9,311
10,846
12,243
Add: Share of associates
-
-
-
-
-
-
ADJ. PAT
7,418
8,785
9,608
9,311
10,846
12,243
% chg
20.4
18.4
9.4
(3.1)
16.5
12.9
(% of Net Sales)
24.8
26.4
26.3
25.5
27.1
27.6
Basic EPS (`)
6.1
7.3
8.0
7.7
9.0
10.1
Fully Diluted EPS (`)
6.1
7.3
8.0
7.7
9.0
10.1
% chg
20.4
18.4
9.4
(3.1)
16.5
12.9
November 2, 2016
5
ITC | 2QFY2017 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
32,124
37,746
43,378
Shareholders Funds
22,288
26,262
30,736
32,929
38,954
44,586
Minority Interest
-
-
-
-
-
-
Total Loans
78
67
53
42
40
40
Deferred Tax Liability
1,706
1,741
2,099
2,370
2,370
2,370
Total Liabilities
24,072
28,070
32,888
35,341
41,364
46,996
APPLICATION OF FUNDS
Gross Block
16,944
18,545
21,727
22,648
27,184
30,684
Less: Acc. Depreciation
5,735
6,532
7,548
8,443
9,493
10,679
Net Block
11,209
12,013
14,178
14,205
17,691
20,004
Capital Work-in-Progress
1,488
2,296
2,114
2,501
2,501
2,501
Investments
7,060
8,823
8,405
12,854
12,854
12,854
Current Assets
14,260
16,097
19,498
19,959
22,044
24,423
Inventories
6,600
7,360
7,837
8,520
9,329
10,471
Sundry Debtors
1,163
2,165
1,722
1,686
1,646
1,705
Cash
3,615
3,289
7,589
6,564
7,263
7,804
Loans & Advances
1,154
1,803
843
903
1,202
1,555
Other
1,728
1,480
1,506
2,285
2,604
2,889
Current liabilities
10,448
11,604
11,775
14,699
14,247
13,308
Net Current Assets
3,812
4,494
7,722
5,260
7,796
11,115
Deferred Tax Asset
503
445
468
522
522
522
Mis. Exp. not written off
-
-
-
-
-
-
Total Assets
24,072
28,070
32,888
35,341
41,364
46,996
November 2, 2016
6
ITC | 2QFY2017 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
16,188
18,273
Depreciation
796
900
962
1,034
1,049
1,187
Change in Working Capital
(1,049)
(1,732)
30
(162)
(1,837)
(2,777)
Interest / Dividend (Net)
(580)
(767)
(1,131)
(1,179)
55
60
Direct taxes paid
(2,886)
(3,797)
(4,226)
(4,828)
(5,342)
(6,030)
Others
(255)
(300)
(324)
(573)
-
-
Cash Flow from Operations
6,710
6,962
9,309
9,251
10,113
10,713
(Inc.)/ Dec. in Fixed Assets
(4,324)
(4,586)
(4,402)
(11,075)
(3,500)
(3,500)
(Inc.)/ Dec. in Investments
(744)
(1,763)
418
(4,449)
-
-
Cash Flow from Investing
(3,581)
(2,823)
(4,820)
(6,626)
(3,500)
(3,500)
Issue of Equity
922
691
979
3
-
-
Inc./(Dec.) in loans
(10)
(11)
(15)
(11)
(2)
-
Dividend Paid (Incl. Tax)
(3,518)
(4,148)
(4,772)
(4,935)
(5,857)
(6,611)
Interest / Dividend (Net)
273
(996)
3,619
1,292
(55)
(60)
Cash Flow from Financing
(2,333)
(4,465)
(190)
(3,650)
(5,914)
(6,671)
Inc./(Dec.) in Cash
796
(326)
4,299
(1,025)
699
541
Opening Cash balances
2,819
3,615
3,289
7,589
6,564
7,263
Closing Cash balances
3,615
3,289
7,589
6,564
7,263
7,804
November 2, 2016
7
ITC | 2QFY2017 Result Update
Key ratios
Y/E March
FY13
FY14
FY15
FY16
FY17E
FY18E
Valuation Ratio (x)
P/E (on FDEPS)
39.1
33.0
30.2
31.1
26.7
23.7
P/CEPS
35.3
29.9
27.4
28.0
24.4
21.6
P/BV
13.0
11.1
9.4
8.8
7.5
6.5
Dividend yield (%)
2.2
2.5
1.7
1.7
2.0
2.3
EV/Sales
9.3
8.4
7.5
7.4
6.7
6.1
EV/EBITDA
26.3
22.3
20.3
19.7
17.6
15.5
EV / Total Assets
8.1
7.0
6.1
5.4
4.9
4.5
Per Share Data (`)
EPS (Basic)
6.1
7.3
8.0
7.7
9.0
10.1
EPS (fully diluted)
6.1
7.3
8.0
7.7
9.0
10.1
Cash EPS
6.8
8.0
8.7
8.6
9.8
11.1
DPS
5.3
6.0
4.1
4.1
4.8
5.5
Book Value
18.4
21.7
25.4
27.2
32.2
36.9
Returns (%)
RoCE
44.0
43.9
40.6
38.5
36.7
36.4
Angel RoIC (Pre-tax)
84.1
81.3
84.6
93.6
75.7
67.7
RoE
33.3
33.5
31.3
28.3
27.8
27.5
Turnover ratios (x)
Asset Turnover
1.8
1.8
1.7
1.6
1.5
1.4
Inventory / Sales (days)
81
81
78
85
85
86
Receivables (days)
14
24
17
17
15
14
Payables (days)
24
25
22
25
26
26
Net Working capital (days)
71
79
74
77
74
74
November 2, 2016
8
ITC | 2QFY2017 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)
November 2, 2016
9