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Strong numbers, stable outlook
Revenue growth of 18% yoy, 25% earnings growth, 13.2% cigarette revenue
growth, 17.5% cigarette EBIT growth and an INR 678m loss in FMCG were the
key highlights of ITC's Q4FY11 results. We maintain our EPS estimates for FY12 at
INR 8.4 per share (above consensus of INR 7.8 per share) and FY13 at INR 9.6 per
share (above consensus of INR 9.0 per share). Our target price of INR 210 remains
unchanged. We maintain Buy
Cigarette revenue growth factors in 15% price increase…
The key highlights of ITC’s 4QFY11 results were 13.2% gross revenue growth and
17.5% growth in EBIT for cigarettes. Volumes for Q4FY11 have dropped 2%
factoring in a possible base effect (when ITC would have pushed higher cigarette
volumes into the system ahead of a bid excise hike) and a product mix effect
(factoring in relatively higher lower-end cigarettes).
…financing the FMCG empire…
FMCG is the Achilles heel of ITC, with investments continuing in the personal
products space and losses of INR 678m for the quarter. While the foods business
remains at breakeven with single-digit margins, the snacks business reached cash
breakeven. We believe ITC's high ad spend (much higher than competition) should
continue as the company uses the current environment to build brands.
Maintaining DCF-based target price of INR 210 and Buy rating
We believe the traction in the FMCG business is a key trigger for a re-rating.
Historically, ITC has invested in a recession and harvested in a boom. On our
assumptions for our two-stage FCFE methodology of: a) risk-free rate of 6.7%,
market risk premium of 8.1% and beta of 0.65, implying a cost of equity of
11.97% and b) growth in the stable phase of 4.5%, we arrive at a target price of
INR 210 per share for ITC. This implies an earnings multiple of 22x our FY12
estimate. Key risks: increased competition from international players interested in
India.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strong numbers, stable outlook
Revenue growth of 18% yoy, 25% earnings growth, 13.2% cigarette revenue
growth, 17.5% cigarette EBIT growth and an INR 678m loss in FMCG were the
key highlights of ITC's Q4FY11 results. We maintain our EPS estimates for FY12 at
INR 8.4 per share (above consensus of INR 7.8 per share) and FY13 at INR 9.6 per
share (above consensus of INR 9.0 per share). Our target price of INR 210 remains
unchanged. We maintain Buy
Cigarette revenue growth factors in 15% price increase…
The key highlights of ITC’s 4QFY11 results were 13.2% gross revenue growth and
17.5% growth in EBIT for cigarettes. Volumes for Q4FY11 have dropped 2%
factoring in a possible base effect (when ITC would have pushed higher cigarette
volumes into the system ahead of a bid excise hike) and a product mix effect
(factoring in relatively higher lower-end cigarettes).
…financing the FMCG empire…
FMCG is the Achilles heel of ITC, with investments continuing in the personal
products space and losses of INR 678m for the quarter. While the foods business
remains at breakeven with single-digit margins, the snacks business reached cash
breakeven. We believe ITC's high ad spend (much higher than competition) should
continue as the company uses the current environment to build brands.
Maintaining DCF-based target price of INR 210 and Buy rating
We believe the traction in the FMCG business is a key trigger for a re-rating.
Historically, ITC has invested in a recession and harvested in a boom. On our
assumptions for our two-stage FCFE methodology of: a) risk-free rate of 6.7%,
market risk premium of 8.1% and beta of 0.65, implying a cost of equity of
11.97% and b) growth in the stable phase of 4.5%, we arrive at a target price of
INR 210 per share for ITC. This implies an earnings multiple of 22x our FY12
estimate. Key risks: increased competition from international players interested in
India.
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