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UBS Investment Research
ITC
Raising volume and EPS estimates
EVENT: No increase in cigarette excise duties
The Union Budget today did not increase excise duty for cigarettes. We had
expected a roughly 8% increase in cigarette excise duties, which we now roll back.
We expect ITC to grow cigarette volumes ~6% (earlier expected ~3-4%) in FY12E
as it would not need to raise prices in a significant manner.
IMPACT: Earnings estimates increased
We raise our EPS estimates for ITC from Rs7.1/8.3 to Rs7.4/8.7 by ~4.5% for
FY12/13. The cigarette portfolio continues to be the key metric to watch for the
stock.
ACTION: ITC is our top pick in the sector
ITC is our top pick for 2011 as we believe positive volume growth across its filter
portfolio should bring in better operating efficiencies. Launches in the King-Size
segment recently have aided uptrading, improving revenue mix.
VALUATION: Our price target is Rs220
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. We assume a WACC of
11%, an interim growth rate of 13.5%, and a terminal growth rate of 5%.
ITC
ITC is the leading cigarette manufacturer in India with a 67% share of the
market by volume and 83% by value. ITC has identified tobacco and
paperboard, hotels and agri-business as its core businesses for the future.
Statement of Risk
We believe higher excise duty is the key risk to ITC’s earnings growth and
valuation. A steady increase in excise duty would adversely affect the long-term
growth trend and lead to lower purchases by smokers.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
ITC
Raising volume and EPS estimates
EVENT: No increase in cigarette excise duties
The Union Budget today did not increase excise duty for cigarettes. We had
expected a roughly 8% increase in cigarette excise duties, which we now roll back.
We expect ITC to grow cigarette volumes ~6% (earlier expected ~3-4%) in FY12E
as it would not need to raise prices in a significant manner.
IMPACT: Earnings estimates increased
We raise our EPS estimates for ITC from Rs7.1/8.3 to Rs7.4/8.7 by ~4.5% for
FY12/13. The cigarette portfolio continues to be the key metric to watch for the
stock.
ACTION: ITC is our top pick in the sector
ITC is our top pick for 2011 as we believe positive volume growth across its filter
portfolio should bring in better operating efficiencies. Launches in the King-Size
segment recently have aided uptrading, improving revenue mix.
VALUATION: Our price target is Rs220
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. We assume a WACC of
ITC
ITC is the leading cigarette manufacturer in India with a 67% share of the
market by volume and 83% by value. ITC has identified tobacco and
paperboard, hotels and agri-business as its core businesses for the future.
Statement of Risk
We believe higher excise duty is the key risk to ITC’s earnings growth and
valuation. A steady increase in excise duty would adversely affect the long-term
growth trend and lead to lower purchases by smokers.
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