3QFY2016 Result Update | FMCG
January 27, 2016
ITC
BUY
CMP
`310
Performance Highlights
Target Price
`359
Quarterly result (Standalone)
Investment Period
12 Months
(` cr)
3QFY16
3QFY15
% chg
2QFY16
%qoq
Stock Info
Revenue
9,177
8,943
2.6
8,904
3.1
Sector
FMCG
EBITDA
3,605
3,464
4.1
3,560
1.3
Market Cap (` cr)
248,776
OPM (%)
39.3
38.7
55bp
40.0
(70bp)
Net Debt (` cr)
(15,928)
PAT
2,653
2,635
0.7
2,431
9.1
Beta
0.8
Source: Company, Angel Research
52 Week High / Low
410/295
Avg. Daily Volume
295,887
ITC posted a poor set of numbers for 3QFY2016, both on the top-line and
Face Value (`)
1
bottom-line fronts. The top-line was subdued due to lower growth in Cigarettes &
Hotel businesses and de-growth in Agri business, which in turn resulted in a lower
BSE Sensex
24,486
profitability of the company.
Nifty
7,436
Reuters Code
ITC.BO
Key highlights: ITC’s net sales for the quarter grew by 2.6% yoy to `9,177cr. The
Bloomberg Code
[email protected]
Cigarettes business posted a 5.7% yoy growth in net sales to `4,380cr, aided by
price hikes. A muted sales growth in the Cigarettes business resulted in the
segment posting a 3.4% yoy growth in its EBIT. The FMCG (others) business,
Shareholding Pattern (%)
which posted a 7.1% yoy growth in net sales to `2,478cr, posted an EBIT level
Promoters
0.0
profit of `19cr. Further, the Paperboards and Packaging division posted a growth
MF / Banks / Indian Fls
20.7
of 5.1% yoy and 12.7% yoy in revenue and segmental EBIT, respectively. The
FII / NRIs / OCBs
35.1
Hotels business posted a 4.5% yoy growth in its top-line, while it reported a
Indian Public / Others
44.2
de-growth at the EBIT level. The Agri business posted a de-growth of 7.3% yoy in
revenue, while its EBIT de-grew by 3.1% on a yoy basis. Overall, the company’s
OPM expanded by 55bp yoy to 39.3%, owing to lower raw material costs (down
Abs. (%)
3m 1yr
3yr
254bp yoy as a % of sales).
Sensex
(10.5)
(17.2)
21.8
ITC
(13.6)
(11.4)
6.9
Outlook and valuation: We expect ITC to report a top-line and bottom-line CAGR
of 4.5% and 5.0% respectively over FY2015-18E. At the current market price, the
stock is trading at 22.2x FY2018E EPS. We recommend buy on the stock with a
3-year price chart
target price of `359.
410
390
Key financials (Standalone)
370
Y/E March (` cr)
FY2015
FY2016E
FY2017E
FY2018E
350
330
Net Sales
36,507
36,804
38,776
41,701
310
290
% chg
9.8
0.8
5.4
7.5
270
Net Profit (Adj)
9,608
9,783
10,357
11,107
250
% chg
9.4
1.8
5.9
7.2
EBITDA (%)
36.9
37.9
37.9
37.9
Source: Company, Angel Research
EPS (`)
12.0
12.2
12.9
13.8
P/E (x)
25.6
25.2
23.8
22.2
P/BV (x)
8.0
7.0
6.2
5.5
RoE (%)
31.3
27.7
25.8
24.6
RoCE (%)
40.6
36.5
33.8
32.1
EV/Sales (x)
6.3
6.3
5.9
5.5
Amarjeet S Maurya
EV/EBITDA (x)
17.1
16.5
15.7
14.5
022 - 3935 7800 Ext: 6831
Source: Company, Angel Research; Note: CMP as of January 25, 2016
Amarjeet [email protected] com
Please refer to important disclosures at the end of this report
1
ITC | 3QFY2016 Result Update
Exhibit 1: Quarterly performance (Standalone)
Y/E March (` cr)
3QFY16
3QFY15
% yoy
2QFY16
%qoq
9MFY16
9MFY15
% chg
Net Sales
9,177
8,943
2.6
8,904
3.1
26,669
27,215
(2.0)
Consumption of RM
3,336
3,478
(4.1)
3,219
3.6
9,723
11,010
(11.7)
(% of Sales)
36.35
38.89
36.15
36.5
40.5
Staff Costs
450
419
7.3
451
(0.2)
1,418
1,326
7.0
(% of Sales)
4.9
4.7
5.1
5.3
4.9
Other Expenses
1,786
1,582
12.9
1,674
6.7
4,976
4,648
7.1
(% of Sales)
19.5
17.7
18.8
18.7
17.1
Total Expenditure
5,572
5,478
1.7
5,344
4.3
16,118
16,984
(5.1)
Operating Profit
3,605
3,464
4.1
3,560
1.3
10,551
10,230
3.1
OPM
39.3
38.7
55
40.0
39.6
37.6
197.2
Interest
16
8
92.2
10
56.1
37
42
(12.0)
Depreciation & Amortization
263
238
10.5
259
1.4
780
712
9.5
Other Income
678
582
16.5
399
69.8
1,392
1,173
18.7
PBT (excl. Extraordinary Items)
4,004
3,800
5.4
3,690
8.5
11,127
10,649
4.5
Extraordinary Income/(Expense)
-
-
-
-
-
PBT (incl. Extraordinary Items)
4,004
3,800
5.4
3,690
8.5
11,127
10,649
4.5
(% of Sales)
43.6
42.5
41.4
41.7
39.1
Provision for Taxation
1,352
1,165
16.0
1,259
7.4
3,777
3,403
11.0
(% of PBT)
33.8
30.7
34.1
33.9
32.0
Reported PAT
2,653
2,635
0.7
2,431
9.1
7,350
7,247
1.4
PATM
29
29
27
28
27
EPS (`)
3.3
3.3
0.7
3.0
9.1
9.2
9.0
1.4
Source: Company, Angel Research
January 27, 6
2
ITC | 3QFY2016 Result Update
Top-line flat
ITC’s net sales for the quarter grew by 2.6% yoy to `9,177cr. The Cigarettes
business posted a 5.7% yoy growth in net sales to `4,380cr, aided by price hikes.
A muted sales growth in the Cigarettes business resulted in the segment posting a
3.4% yoy growth in its EBIT. The FMCG (others) business, which posted a 7.1% yoy
growth in net sales to `2,478cr, posted an EBIT level profit of `19cr. Further, the
Paperboards and Packaging division posted a growth of 5.1% yoy and 12.7% yoy
in revenue and segmental EBIT, respectively. The Hotels business posted a 4.5%
yoy growth in its top-line, while it reported a de-growth at the EBIT level. The Agri
business posted a de-growth of 7.3% yoy in revenue, while its EBIT de-grew by
3.1% on a yoy basis.
Exhibit 2: Top-line 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 55bp yoy to 39.3%
Exhibit 4: Earnings growth at 0.7% yoy
70
63.1
63.9
63.7
3,000
18.2
20.0
60.6
61.1
60.6
57.7
57
15.6
60
2,500
15.0
2,000
10.5
50
39.4
40.0
39.3
8.7
38.7
38.7
1,500
10.0
35.4
34.9
40
34
3.6
0.7
1,000
3.7
30
5.0
0.3
500
20
-
-
OPM
Gross margin
PAT (LHS)
yoy growth (RHS)
Source: Company, Angel Research
Source: Company, Angel Research
Operating profit up 4.1% yoy
The company reported an operating profit of `3,605cr for 3QFY2016, up
4.1% yoy. However, the company’s OPM expanded by 55bp yoy to 39.3%, owing
to lower raw material costs (down 254bp yoy as a % of sales).
January 27, 6
3
ITC | 3QFY2016 Result Update
Exhibit 5: Segment-wise performance (Standalone)
Y/E Mar (` cr)
3QFY16
3QFY15
% yoy 2QFY16
% qoq 9MFY16 9MFY15
% chg
Net Income
Cigarettes
4,380
4,142
5.7
4,317
1.5
12,847
12,594
2.0
Others
2,478
2,314
7.1
2,352
5.4
7,000
6,445
8.6
Hotels
345
330
4.5
290
19.0
923
841
9.8
Agri Business
1,481
1,598
(7.3)
1,844
(19.7)
5,650
6,953
(18.7)
Paperboards & Packaging
1,260
1,199
5.1
1,254
0.5
3,779
3,771
0.2
PBIT
Cigarettes
2,984
2,886
3.4
2,969
0.5
8,734
8,490
2.9
Others
19
11
63.6
(11)
(0)
(14)
Hotels
26
29
(10.0)
(6)
13
7
85.2
Agri Business
231
239
(3.1)
294
(21.3)
759
740
2.7
Paperboards & Packaging
241
214
12.7
209
15.2
705
731
(3.6)
PBIT Margin (%)
Cigarettes
68.1
69.7
68.8
68.0
67.4
Others
0.8
0.5
(0.5)
(0.0)
(0.2)
Hotels
7.5
8.7
(1.9)
1.4
0.8
Agri Business
15.6
14.9
15.9
13.4
10.6
Paperboards & Packaging
19.1
17.8
16.7
18.6
19.4
Source: Company, Angel Research
January 27, 6
4
ITC | 3QFY2016 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 in FY2015-17E: 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 4.5% and 5.0%
respectively over FY2015-18E. At the current market price, the stock is trading at
22.2x FY2018E EPS. We recommend a Buy on the stock with a target price of
`360.
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.
January 27, 6
5
ITC | 3QFY2016 Result Update
Profit and loss statement (Standalone)
Y/E March (` cr)
FY13
FY14
FY15
FY16E
FY17E
FY18E
Total operating income
29,901
33,239
36,507
36,804
38,776
41,701
% chg
18.9
11.2
9.8
0.8
5.4
7.5
Total Expenditure
19,274
20,784
23,034
22,855
24,080
25,896
Cost of Materials
12,066
13,156
14,672
14,685
15,627
16,847
Personnel
1,387
1,608
1,780
1,840
1,978
2,127
Others
5,821
6,019
6,582
6,330
6,476
6,922
EBITDA
10,628
12,455
13,474
13,949
14,696
15,805
% chg
20.1
17.2
8.2
3.5
5.4
7.5
(% of Net Sales)
35.5
37.5
36.9
37.9
37.9
37.9
Depreciation& Amortisation
796
900
962
1,038
1,123
1,256
EBIT
9,832
11,555
12,512
12,911
13,573
14,548
% chg
20.6
17.5
8.3
3.2
5.1
7.2
(% of Net Sales)
32.9
34.8
34.3
35.1
35.0
34.9
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
12.0
12.6
12.7
Share in profit of Associates
-
-
-
-
-
-
Recurring PBT
10,684
12,659
13,998
14,601
15,458
16,578
% chg
20.1
18.5
10.6
4.3
5.9
7.2
Extraordinary Expense/(Inc.)
-
-
-
-
-
-
PBT (reported)
10,684
12,659
13,998
14,601
15,458
16,578
Tax
3,266
3,874
4,390
4,818
5,101
5,471
(% of PBT)
30.6
30.6
31.4
33.0
33.0
33.0
PAT (reported)
7,418
8,785
9,608
9,783
10,357
11,107
Add: Share of associates
-
-
-
-
-
-
ADJ. PAT
7,418
8,785
9,608
9,783
10,357
11,107
% chg
20.4
18.4
9.4
1.8
5.9
7.2
(% of Net Sales)
24.8
26.4
26.3
26.6
26.7
26.6
Basic EPS (`)
9.2
10.9
12.0
12.2
12.9
13.8
Fully Diluted EPS (`)
9.2
10.9
12.0
12.2
12.9
13.8
% chg
20.4
18.4
9.4
1.8
5.9
7.2
January 27, 6
6
ITC | 3QFY2016 Result Update
Balance Sheet (Standalone)
Y/E March (` cr)
FY13
FY14
FY15
FY16E FY17E FY18E
SOURCES OF FUNDS
Equity Share Capital
790
795
802
802
802
802
Reserves& Surplus
21,498
25,467
29,934
34,532
39,296
44,405
Shareholders Funds
22,288
26,262
30,736
35,333
40,098
45,207
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
37,499
42,264
47,373
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
21,172
23,120
26,556
Inventories
6,600
7,360
7,837
7,865
8,499
9,368
Sundry Debtors
1,163
2,165
1,722
2,017
2,656
3,085
Cash
3,615
3,289
7,589
7,610
7,700
8,265
Loans & Advances
1,154
1,803
843
1,840
2,327
2,919
Other
1,728
1,480
1,506
1,840
1,939
2,919
Current liabilities
10,448
11,604
11,775
11,218
10,778
11,351
Net Current Assets
3,812
4,494
7,722
9,954
12,342
15,205
Deferred Tax Asset
503
445
468
468
468
468
Mis. Exp. not written off
-
-
-
-
-
-
Total Assets
24,072
28,070
32,888
37,499
42,264
47,373
January 27, 6
7
ITC | 3QFY2016 Result Update
Cash flow statement (Standalone)
Y/E March (` cr)
FY13
FY14
FY15
FY16E FY17E FY18E
Profit before tax
10,684
12,659
13,998
14,601
15,458
16,578
Depreciation
796
900
962
1,038
1,123
1,256
Change in Working Capital
(1,049)
(1,732)
30
(2,128)
(2,297)
(2,299)
Interest / Dividend (Net)
(580)
(767)
(1,131)
60
65
70
Direct taxes paid
(2,886)
(3,797)
(4,226)
(4,818)
(5,101)
(5,471)
Others
(255)
(300)
(324)
-
-
-
Cash Flow from Operations
6,710
6,962
9,309
8,753
9,248
10,135
(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)
(5,185)
(5,593)
(5,998)
Interest / Dividend (Net)
273
(996)
3,619
(60)
(65)
(70)
Cash Flow from Financing
(2,333)
(4,465)
(190)
(5,232)
(5,657)
(6,068)
Inc./(Dec.) in Cash
796
(326)
4,299
21
90
565
Opening Cash balances
2,819
3,615
3,289
7,589
7,610
7,700
Closing Cash balances
3,615
3,289
7,589
7,610
7,700
8,265
January 27, 6
8
ITC | 3QFY2016 Result Update
Key ratios
Y/E March
FY13
FY14
FY15
FY16E
FY17E
FY18E
Valuation Ratio (x)
P/E (on FDEPS)
33.2
28.0
25.6
25.2
23.8
22.2
P/CEPS
30.0
25.4
23.3
22.8
21.5
19.9
P/BV
11.1
9.4
8.0
7.0
6.2
5.5
Dividend yield (%)
1.7
2.0
2.0
2.1
2.3
2.4
EV/Sales
7.9
7.1
6.3
6.3
5.9
5.5
EV/EBITDA
22.2
18.8
17.1
16.5
15.7
14.5
EV / Total Assets
6.8
5.9
5.2
4.7
4.3
3.9
Per Share Data (`)
EPS (Basic)
9.2
10.9
12.0
12.2
12.9
13.8
EPS (fully diluted)
9.2
10.9
12.0
12.2
12.9
13.8
Cash EPS
10.2
12.1
13.2
13.5
14.3
15.4
DPS
5.3
6.0
6.2
6.5
7.0
7.5
Book Value
27.7
32.7
38.2
44.0
49.9
56.3
Returns (%)
RoCE
44.0
43.9
40.6
36.5
33.8
32.1
Angel RoIC (Pre-tax)
84.1
81.3
84.6
66.6
56.4
50.9
RoE
33.3
33.5
31.3
27.7
25.8
24.6
Turnover ratios (x)
Asset Turnover
1.8
1.8
1.7
1.5
1.4
1.3
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
January 27, 6
9
ITC | 3QFY2016 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)
January 27, 6
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