3QFY2017 Result Update | FMCG
January 30, 2017
ITC
ACCUMULATE
CMP
`257
Performance Highlights
Target Price
`284
Quarterly result (Standalone)
Investment Period
12 Months
(` cr)
3QFY17
3QFY16
% yoy
2QFY17
%qoq
Stock Info
Revenue
9,248
8,867
4.3
9,661
(4.3)
Sector
FMCG
EBITDA
3,546
3,475
2.1
3,630
(2.3)
Market Cap (` cr)
311,035
OPM (%)
38.3
39.2
(84bp)
37.6
77bp
Net Debt (` cr)
(19,376)
PAT
2,647
2,504
5.7
2,500
5.9
Beta
0.8
52 Week High / Low
267/179
Source: Company, Angel Research
Avg. Daily Volume
916,990
For 3QFY2017, ITC has reported below estimates numbers, both on the top-line
Face Value (`)
1
and bottom-line fronts, on the back of lower Cigarettes volume growth due to
BSE Sensex
27,850
demonetization of Indian currency. However, healthy growth was witnessed in
Nifty
8,633
Reuters Code
ITC.BO
other businesses like Hotels, Agri Business, etc.
Bloomberg Code
[email protected]
Key highlights: ITC’s net sales for the quarter grew by 4.3% yoy to `9,248cr. In
terms of segment wise performance (gross level), the Cigarettes business posted a
Shareholding Pattern (%)
growth of 2.2% yoy in sales to `8,288cr, aided by price hike (volume was flattish
Promoters
0.0
during the quarter). The other FMCG businesses posted a growth of 3.4% yoy in
MF / Banks / Indian Fls
38.7
sales to `2,569cr. However, the Hotel division and Agri business posted a healthy
FII / NRIs / OCBs
51.2
revenue growth of ~7% and ~13% respectively, during the quarter. Overall, the
Indian Public / Others
10.1
company’s OPM declined by 84bp yoy to 38.3% owing to an increase in raw
material cost.
Abs. (%)
3m 1yr
3yr
Sensex
0.1
13.8
34.6
Outlook and valuation: We expect ITC to report top-line and bottom-line CAGR
ITC
5.8
5.8
18.3
of 9% and 12% respectively over FY2016-18E. At the current market price, the
stock is trading at 26.9x its FY2018E EPS. We recommend an Accumulate rating
3-year price chart
on the stock with a Target Price of `284.
300
250
Key financials (Standalone)
200
Y/E March (` cr)
FY2015
FY2016
FY2017E
FY2018E
150
Net Sales
36,507
36,583
38,935
43,170
100
% chg
9.8
0.2
6.4
10.9
50
Net Profit (Adj)
9,608
9,311
10,361
11,594
0
% chg
9.4
(3.1)
11.3
11.9
EBITDA (%)
36.9
37.5
38.3
39.2
Source: Company, Angel Research
EPS (`)
8.0
7.7
8.6
9.6
P/E (x)
32.4
33.5
30.1
26.9
P/BV (x)
10.2
9.5
8.1
7.1
RoE (%)
31.3
28.3
26.8
26.3
RoCE (%)
40.6
38.5
35.5
35.4
Amarjeet S Maurya
EV/Sales (x)
8.1
8.0
7.5
6.7
022 - 3935 7800 Ext: 6831
EV/EBITDA (x)
21.9
21.3
19.6
17.2
[email protected]
Source: Company, Angel Research; Note: CMP as of January 30, 2016
Please refer to important disclosures at the end of this report
1
ITC | 3QFY2017 Result Update
Exhibit 1: Quarterly performance (Standalone)
Y/E March (` cr)
3QFY17
3QFY16
% yoy
2QFY17
%qoq
Net Sales
9,248
8,867
4.3
9,661
(4.3)
Consumption of RM
3,377
3,028
11.5
3,671
(8.0)
(% of Sales)
36.51
34.15
38.0
Staff Costs
572
571
0.2
600
(4.7)
(% of Sales)
6.2
6.4
6.2
Other Expenses
1,753
1,793
(2.2)
1,759
(0.3)
(% of Sales)
19.0
20.2
18.2
Total Expenditure
5,702
5,392
5.7
6,031
(5.5)
Operating Profit
3,546
3,475
2.1
3,630
(2.3)
OPM
38.3
39.2
(84)
37.6
77
Interest
14
16
(15.5)
11
26.8
Depreciation & Ammortisation
267
262
1.8
268
(0.7)
Other Income
688
649
6.0
475
44.7
PBT (excl. Extraordinary Items)
3,954
3,846
2.8
3,826
3.3
Extraordinary Income/(Expense)
-
-
-
PBT (incl. Extraordinary Items)
3,954
3,846
2.8
3,826
3.3
(% of Sales)
42.8
43.4
39.6
Provision for Taxation
1,307
1,342
(2.6)
1,326
(1.4)
(% of PBT)
33.1
34.9
34.7
Reported PAT
2,647
2,504
5.7
2,500
5.9
PATM
29
28
26
Source: Company, Angel Research
January 30, 2017
2
ITC | 3QFY2017 Result Update
Top-line remains subdued
ITC’s net sales for the quarter grew by 4.3% yoy to `9,248cr. In terms of segment
wise performance (gross level), the Cigarettes business posted a growth of 2.2%
yoy in sales to `8,288cr aided by price hike (volume was flattish during the
quarter). The other FMCG businesses posted a growth of 3.4% yoy in sales to
`2,569cr. However, the Hotel division and Agri business posted a healthy revenue
growth of ~7% and ~13% respectively during the quarter.
Operating profit up 2% yoy
The company reported an operating profit of `3,546cr during 3QFY2017, up
2% yoy. Further, the company’s OPM declined by 84bp yoy to 38.3% owing to an
increase in raw material cost.
Exhibit 2: Segment-wise performance (Standalone)
Y/E Mar (` cr)
3QFY17
3QFY16
% yoy
2QFY17
% qoq
Gross Income
Cigarettes
8,288
8,106
2.2
8,528
(2.8)
Others
2,569
2,485
3.4
2,672
(3.8)
Hotels
371
345
7.3
297
24.6
Agri Business
1,672
1,481
12.9
1,880
(11.1)
Paperboards & Packaging
1,336
1,338
(0.1)
1,331
0.3
PBIT
Cigarettes
3,034
2,984
1.7
3,217
(5.7)
Others
(20)
19
(204.9)
(3)
503.1
Hotels
42
26
63.2
1
6384.6
Agri Business
237
235
0.7
297
(20.3)
Paperboards & Packaging
246
241
2.1
232
6.1
PBIT Margin (%)
Cigarettes
36.6
36.8
37.7
Others
(0.8)
0.8
(0.1)
Hotels
11.4
7.5
0.2
Agri Business
14.2
15.9
15.8
Paperboards & Packaging
18.4
18.0
17.4
Source: Company, Angel Research
January 30, 2017
3
ITC | 3QFY2017 Result Update
Investment rationale
Cigarettes business to enjoy strong pricing power: We believe ITC’s cigarettes
business is well poised to continue to record healthy 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% and 12%
respectively over FY2016-18E. At the current market price, the stock is trading at
26.9x its FY2018E EPS. We recommend an Accumulate 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.
January 30, 2017
4
ITC | 3QFY2017 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
38,935
43,170
% chg
18.9
11.2
9.8
0.2
6.4
10.9
Total Expenditure
19,274
20,784
23,034
22,865
24,023
26,248
Cost of Materials
12,066
13,156
14,672
13,450
14,328
15,757
Personnel
1,387
1,608
1,780
2,328
2,025
2,288
Others
5,821
6,019
6,582
7,086
7,670
8,202
EBITDA
10,628
12,455
13,474
13,718
14,912
16,923
% chg
20.1
17.2
8.2
1.8
8.7
13.5
(% of Net Sales)
35.5
37.5
36.9
37.5
38.3
39.2
Depreciation& Amortisation
796
900
962
1,032
1,162
1,328
EBIT
9,832
11,555
12,512
12,686
13,750
15,595
% chg
20.6
17.5
8.3
1.4
8.4
13.4
(% of Net Sales)
32.9
34.8
34.3
34.7
35.3
36.1
Interest & other Charges
86
3
57
49
55
60
Other Income
939
1,107
1,543
1,769
1,769
1,769
(% of PBT)
8.8
8.7
11.0
12.3
11.4
10.2
Share in profit of Associates
-
-
-
-
-
-
Recurring PBT
10,684
12,659
13,998
14,406
15,464
17,304
% chg
20.1
18.5
10.6
2.9
7.3
11.9
Extraordinary Expense/(Inc.)
-
-
-
-
-
-
PBT (reported)
10,684
12,659
13,998
14,406
15,464
17,304
Tax
3,266
3,874
4,390
5,095
5,103
5,710
(% of PBT)
30.6
30.6
31.4
35.4
33.0
33.0
PAT (reported)
7,418
8,785
9,608
9,311
10,361
11,594
Add: Share of associates
-
-
-
-
-
-
ADJ. PAT
7,418
8,785
9,608
9,311
10,361
11,594
% chg
20.4
18.4
9.4
(3.1)
11.3
11.9
(% of Net Sales)
24.8
26.4
26.3
25.5
26.6
26.9
Basic EPS (`)
6.1
7.3
8.0
7.7
8.6
9.6
Fully Diluted EPS (`)
6.1
7.3
8.0
7.7
8.6
9.6
% chg
20.4
18.4
9.4
(3.1)
11.3
11.9
January 30, 2017
5
ITC | 3QFY2017 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
37,523
42,856
Shareholders Funds
22,288
26,262
30,736
32,929
38,731
44,064
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
41,141
46,475
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
9,605
10,933
Net Block
11,209
12,013
14,178
14,205
17,579
19,751
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
21,427
23,647
Inventories
6,600
7,360
7,837
8,520
9,067
10,172
Sundry Debtors
1,163
2,165
1,722
1,686
1,600
1,656
Cash
3,615
3,289
7,589
6,564
7,061
7,502
Loans & Advances
1,154
1,803
843
903
1,168
1,511
Other
1,728
1,480
1,506
2,285
2,531
2,806
Current liabilities
10,448
11,604
11,775
14,699
13,741
12,800
Net Current Assets
3,812
4,494
7,722
5,260
7,686
10,847
Deferred Tax Asset
503
445
468
522
522
522
Mis. Exp. not written off
-
-
-
-
-
-
Total Assets
24,072
28,070
32,888
35,341
41,141
46,475
January 30, 2017
6
ITC | 3QFY2017 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
15,464
17,304
Depreciation
796
900
962
1,034
1,162
1,328
Change in Working Capital
(1,049)
(1,732)
30
(162)
(1,929)
(2,720)
Interest / Dividend (Net)
(580)
(767)
(1,131)
(1,179)
55
60
Direct taxes paid
(2,886)
(3,797)
(4,226)
(4,828)
(5,103)
(5,710)
Others
(255)
(300)
(324)
(573)
-
-
Cash Flow from Operations
6,710
6,962
9,309
9,251
9,649
10,262
(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)
(5,595)
(6,261)
Interest / Dividend (Net)
273
(996)
3,619
1,292
(55)
(60)
Cash Flow from Financing
(2,333)
(4,465)
(190)
(3,650)
(5,652)
(6,321)
Inc./(Dec.) in Cash
796
(326)
4,299
(1,025)
497
441
Opening Cash balances
2,819
3,615
3,289
7,589
6,564
7,061
Closing Cash balances
3,615
3,289
7,589
6,564
7,061
7,502
January 30, 2017
7
ITC | 3QFY2017 Result Update
Key ratios
Y/E March
FY13
FY14
FY15
FY16
FY17E
FY18E
Valuation Ratio (x)
P/E (on FDEPS)
42.0
35.5
32.4
33.5
30.1
26.9
P/CEPS
37.9
32.2
29.5
30.1
27.0
24.1
P/BV
14.0
11.9
10.2
9.5
8.1
7.1
Dividend yield (%)
2.0
2.3
1.6
1.6
1.8
2.0
EV/Sales
10.1
9.0
8.1
8.0
7.5
6.7
EV/EBITDA
28.3
24.1
21.9
21.3
19.6
17.2
EV / Total Assets
8.7
7.6
6.6
5.8
5.3
4.9
Per Share Data (`)
EPS (Basic)
6.1
7.3
8.0
7.7
8.6
9.6
EPS (fully diluted)
6.1
7.3
8.0
7.7
8.6
9.6
Cash EPS
6.8
8.0
8.7
8.6
9.5
10.7
DPS
5.3
6.0
4.1
4.1
4.6
5.2
Book Value
18.4
21.7
25.4
27.2
32.0
36.4
Returns (%)
RoCE
44.0
43.9
40.6
38.5
35.5
35.4
Angel RoIC (Pre-tax)
84.1
81.3
84.6
93.6
72.9
65.7
RoE
33.3
33.5
31.3
28.3
26.8
26.3
Turnover ratios (x)
Asset Turnover
1.8
1.8
1.7
1.6
1.4
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
January 30, 2017
8
ITC | 3QFY2017 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)
January 30, 2017
9