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ITC is one of the most successful domestic company in packaged foods space which
has continuously innovated and built strong brands. It made its entry into the
packaged foods business in August 2001 with the launch of the Kitchens of India
brand. A more broad-based entry has been made since June 2002 with brand
launches in the Confectionery, Staples and Snack Foods segments. Today ITC
operates in four key categories – Staples, Ready to eat foods, Snacks and
Confectionery. ITC has successfully leveraged the distribution strength of its
cigarette network across the country to support growth for biscuits and confectionery
portfolio.
Table 19: Timeline for ITC's key introductions in packaged foods category
Year Product launch
2001 Kitchens of India RTE
2002 Aashirvaad Atta
2002 Confectionery
2003 Sunfeast biscuits
2005 Sunfeast Pasta
2005 Sunfeast Cookies
2007 Bingo chips
2010 Yippee Instant Noodles
Source: Company reports.
We estimate packaged food business for ITC has annual turnover of Rs23bn
accounting for c9% share of ITC's gross turnover and it grew at 20% in FY10. Sales
for packaged foods have grown at CAGR of 45% over FY05-10 supported by
volume CAGR of 28%. The foods business has achieved EBITDA breakeven now on
an overall basis. An important shift in the company's strategy over past two years has
been to increase share of premium products (particularly in biscuits) to power
margins. It is also investing significantly in manufacturing and distribution
infrastructure to support larger scale in the wake of growing volumes.
ITC (Overweight)
Our Dec-11 sum-of-parts-based PT is Rs190. Our target EV/EBITDA multiple for
the cigarette division is 13x, in line with the benchmark to global tobacco multiples
adjusted for growth.
SOTP
Methodology Multiple (X) Per Share
Cigarettes EV/EBITDA 13.0x 131
FMCG EV/Sales 2.0x 17
Hotel EV/EBITDA 13.0x 11
Paper EV/EBITDA 7.0x 14
Agri EV/EBITDA 6.0x 5
EV 179
Net Cash 11
Equity Value 190
Source: J.P. Morgan estimates
Key downside risks to our earnings and PT are a substantial decline in volume
growth for cigarettes, any business diversification that is substantially dilutive to
earnings, and any legislative changes that impact cigarette demand.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ITC is one of the most successful domestic company in packaged foods space which
has continuously innovated and built strong brands. It made its entry into the
packaged foods business in August 2001 with the launch of the Kitchens of India
brand. A more broad-based entry has been made since June 2002 with brand
launches in the Confectionery, Staples and Snack Foods segments. Today ITC
operates in four key categories – Staples, Ready to eat foods, Snacks and
Confectionery. ITC has successfully leveraged the distribution strength of its
cigarette network across the country to support growth for biscuits and confectionery
portfolio.
Table 19: Timeline for ITC's key introductions in packaged foods category
Year Product launch
2001 Kitchens of India RTE
2002 Aashirvaad Atta
2002 Confectionery
2003 Sunfeast biscuits
2005 Sunfeast Pasta
2005 Sunfeast Cookies
2007 Bingo chips
2010 Yippee Instant Noodles
Source: Company reports.
We estimate packaged food business for ITC has annual turnover of Rs23bn
accounting for c9% share of ITC's gross turnover and it grew at 20% in FY10. Sales
for packaged foods have grown at CAGR of 45% over FY05-10 supported by
volume CAGR of 28%. The foods business has achieved EBITDA breakeven now on
an overall basis. An important shift in the company's strategy over past two years has
been to increase share of premium products (particularly in biscuits) to power
margins. It is also investing significantly in manufacturing and distribution
infrastructure to support larger scale in the wake of growing volumes.
ITC (Overweight)
Our Dec-11 sum-of-parts-based PT is Rs190. Our target EV/EBITDA multiple for
the cigarette division is 13x, in line with the benchmark to global tobacco multiples
adjusted for growth.
SOTP
Methodology Multiple (X) Per Share
Cigarettes EV/EBITDA 13.0x 131
FMCG EV/Sales 2.0x 17
Hotel EV/EBITDA 13.0x 11
Paper EV/EBITDA 7.0x 14
Agri EV/EBITDA 6.0x 5
EV 179
Net Cash 11
Equity Value 190
Source: J.P. Morgan estimates
Key downside risks to our earnings and PT are a substantial decline in volume
growth for cigarettes, any business diversification that is substantially dilutive to
earnings, and any legislative changes that impact cigarette demand.
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