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Budget to determine volume growth, EBIT growth to be managed
FY11 saw steep tax hikes followed by steep price increases (c17 %). FY11 cigarettes volumes likely to be flat. Next year’s
volume growth to depend on budget: expect mid-high single digit growth if budget is benign. If excise duty increases
c10%, volume growth could be in low single digits. VAT rate is 14.5% currently on average (plus 2.5% local taxes). This
burden could increase by c300bps when GST is implemented (April 2012 expected). Expect 30-40 bps margin expansion
CAGR in cigarettes over 3-4 yrs.
Marlboro compact has negligible volumes despite 6-7 months of launch. It seems that Marlboro smokers prefer Kings
segment – the smaller stick does not have much appeal.
Foods: good momentum in top and bottom line. Foods segment is already breaking even, even including new products like
Bingo and Yippee. FY12: 25% growth expected in top line, higher at bottom line. Personal products will take time to break
even, as the company is investing in brands right now. Soaps 6% market share and shampoo 4% market share achieved.
Hotels in pipeline: Kolkotta 500 rooms in 3 years, 100 rooms in Gurgaon, Ahmedabad sand Hyderabad properties starting
construction this year. cINR800m incremental depreciation from the new Chennai property likely to come in FY12.
Valuation and risks
The stock is trading at 20.2x FY12e earnings. Our target price of INR180 is derived on a SOTP basis. All divisions use our
estimated forward PE multiple on Sep-2012e EPS. 1) cigarettes INR138, at 22x, in line with global peers, adjusting for higher
growth and better ROE; 2) hotels INR8, at 20x; 3) Agribusiness INR3, at 6x; 4) paperboards INR5, at 5x; 5) FMCG others,
INR16, at 2.0x and cash at INR10/share. Our FY13e EPS is INR8.76, which represents a 3-year (FY10-13e) CAGR of 17.1%.
Upside risk: Cigarette volume growth higher than expected; further price hike in cigarettes; pick up in tourism improving
hotel room rates and occupancy. Downside risk: Volume backlash to price increase higher than anticipated; increased
losses in FMCG business; PE multiple contraction in the event of significant economic downturn.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Budget to determine volume growth, EBIT growth to be managed
FY11 saw steep tax hikes followed by steep price increases (c17 %). FY11 cigarettes volumes likely to be flat. Next year’s
volume growth to depend on budget: expect mid-high single digit growth if budget is benign. If excise duty increases
c10%, volume growth could be in low single digits. VAT rate is 14.5% currently on average (plus 2.5% local taxes). This
burden could increase by c300bps when GST is implemented (April 2012 expected). Expect 30-40 bps margin expansion
CAGR in cigarettes over 3-4 yrs.
Marlboro compact has negligible volumes despite 6-7 months of launch. It seems that Marlboro smokers prefer Kings
segment – the smaller stick does not have much appeal.
Foods: good momentum in top and bottom line. Foods segment is already breaking even, even including new products like
Bingo and Yippee. FY12: 25% growth expected in top line, higher at bottom line. Personal products will take time to break
even, as the company is investing in brands right now. Soaps 6% market share and shampoo 4% market share achieved.
Hotels in pipeline: Kolkotta 500 rooms in 3 years, 100 rooms in Gurgaon, Ahmedabad sand Hyderabad properties starting
construction this year. cINR800m incremental depreciation from the new Chennai property likely to come in FY12.
Valuation and risks
The stock is trading at 20.2x FY12e earnings. Our target price of INR180 is derived on a SOTP basis. All divisions use our
estimated forward PE multiple on Sep-2012e EPS. 1) cigarettes INR138, at 22x, in line with global peers, adjusting for higher
growth and better ROE; 2) hotels INR8, at 20x; 3) Agribusiness INR3, at 6x; 4) paperboards INR5, at 5x; 5) FMCG others,
INR16, at 2.0x and cash at INR10/share. Our FY13e EPS is INR8.76, which represents a 3-year (FY10-13e) CAGR of 17.1%.
Upside risk: Cigarette volume growth higher than expected; further price hike in cigarettes; pick up in tourism improving
hotel room rates and occupancy. Downside risk: Volume backlash to price increase higher than anticipated; increased
losses in FMCG business; PE multiple contraction in the event of significant economic downturn.
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