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ITC
Earnings visibility remains strong
ITC's 16.2% EBITDA growth was in line with expectations. Cigarette business has
recorded flat volumes y.o.y, but our channel checks suggest that on consumer
demand basis, it has already returned to positive growth. Dividend payout of over
80% is another key positive. Buy.
Strong underlying performance continues
! ITC recorded a 16% revenue growth which was driven by 13% growth in its cigarette
business, 17% growth in other FMCG business, 18% growth in its hotels business, and 15%
growth in paper business. Since the agri business recorded a lower revenue growth at 9.5%,
the overall growth has slightly weaker than expected.
! EBITDA growth at 16.2% was driven by 17.5% growth in cigarette business, 27% growth its
hotel business, 15% growth in its paper business. The other FMCG business recorded a y.o.y
and q.o.q drop in EBIT loses, its EBIT loss to net sales at 5.2% is lowest since ITC's entry into
other FMCG segments and compares with -16% in FY09 and -9.6% in FY10.
Growth drivers intact across its key business segments.
! The return of the cigarette business to flat/ positive volume growth momentum in 4QFY11
ensures sustaining momentum in its core cigarette business in FY12 and beyond.
! ITC has put in place strong investment plans in both its hotels and paper business to sustain
the growth momemtum. The company's paper manufacturing division plans to increase its
0.5mmt pa capacity by 0.1mmt within 12-18 months and to add an incremental 0.2mmt pa of
green field capacity to its existing facility in Andhra Pradesh. Meanwhile, the hotel division is
working to increase its number of five-star rooms from 3,000 to 4,000 via the launch of the
Grand Chola property in Chennai by end-FY12 and the Kolkata expansion by end-FY13. ITC
is also working to launch new hotels in Hyderabad, Ahmadabad, Gurgaon and Delhi.
! Its other FMCG business is clearly seeing EBIT losses reducing, and we believe the company
is on course to achieve a overall break-even in FY13.
Earnings visibility remains strong & dividend payouts at 80.4%
! ITC has delivered a strong 21% EPS growth in FY11 despite facing #2% decline in cigarette
volumes. We expect volume growth to turn positive in FY12, and with the Union Budget not
raising excise duties, ITC can judiciously alter pricing in non-demand elastic segments to
stimulate the volume momemtum. ITC's cigarette earnings would continue to grow, and would
be largely immune to the inflation/ rising interest rates induced margin pressures.
! ITC has declared a DPS of Rs4.45/share ( which includes Rs2.8/share of special dividend to
mark its 100th AGM), which is another key positive. In the last 2 years ITC has paid its share
holders $1.9bn of dividends ( from a reported PAT of $2bn), which indicates a structural shift
in its payout strategy
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ITC
Earnings visibility remains strong
ITC's 16.2% EBITDA growth was in line with expectations. Cigarette business has
recorded flat volumes y.o.y, but our channel checks suggest that on consumer
demand basis, it has already returned to positive growth. Dividend payout of over
80% is another key positive. Buy.
Strong underlying performance continues
! ITC recorded a 16% revenue growth which was driven by 13% growth in its cigarette
business, 17% growth in other FMCG business, 18% growth in its hotels business, and 15%
growth in paper business. Since the agri business recorded a lower revenue growth at 9.5%,
the overall growth has slightly weaker than expected.
! EBITDA growth at 16.2% was driven by 17.5% growth in cigarette business, 27% growth its
hotel business, 15% growth in its paper business. The other FMCG business recorded a y.o.y
and q.o.q drop in EBIT loses, its EBIT loss to net sales at 5.2% is lowest since ITC's entry into
other FMCG segments and compares with -16% in FY09 and -9.6% in FY10.
Growth drivers intact across its key business segments.
! The return of the cigarette business to flat/ positive volume growth momentum in 4QFY11
ensures sustaining momentum in its core cigarette business in FY12 and beyond.
! ITC has put in place strong investment plans in both its hotels and paper business to sustain
the growth momemtum. The company's paper manufacturing division plans to increase its
0.5mmt pa capacity by 0.1mmt within 12-18 months and to add an incremental 0.2mmt pa of
green field capacity to its existing facility in Andhra Pradesh. Meanwhile, the hotel division is
working to increase its number of five-star rooms from 3,000 to 4,000 via the launch of the
Grand Chola property in Chennai by end-FY12 and the Kolkata expansion by end-FY13. ITC
is also working to launch new hotels in Hyderabad, Ahmadabad, Gurgaon and Delhi.
! Its other FMCG business is clearly seeing EBIT losses reducing, and we believe the company
is on course to achieve a overall break-even in FY13.
Earnings visibility remains strong & dividend payouts at 80.4%
! ITC has delivered a strong 21% EPS growth in FY11 despite facing #2% decline in cigarette
volumes. We expect volume growth to turn positive in FY12, and with the Union Budget not
raising excise duties, ITC can judiciously alter pricing in non-demand elastic segments to
stimulate the volume momemtum. ITC's cigarette earnings would continue to grow, and would
be largely immune to the inflation/ rising interest rates induced margin pressures.
! ITC has declared a DPS of Rs4.45/share ( which includes Rs2.8/share of special dividend to
mark its 100th AGM), which is another key positive. In the last 2 years ITC has paid its share
holders $1.9bn of dividends ( from a reported PAT of $2bn), which indicates a structural shift
in its payout strategy
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