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Cigarette volumes jump 8% yoy; highest in past ten years
ITC’s core cigarette business continues to display resilience with
strong 8% volume growth during Q1 FY12 – highest in the past ten
years. Cigarette EBIT margin witnessed a sharp 200bps expansion
led by ~5% price hikes undertaken by the company. We expect
further price hikes going ahead, which would ensure healthy margin
expansion. With firm consumer demand and strong brand portfolio,
we believe ITC is well-positioned to grow cigarette volumes at 6-8%
in FY12 (on a weak base of FY11).
Other-FMCG segment to break even by FY13
With the improving profitability in the foods segment (key factor in
narrowing FMCG losses) driven by higher margins in biscuits and
staples segment, the other-FMCG segment is becoming a stronger
business. Personal care segment is also gaining significant market
share in the key categories. The other-FMCG division continues to
record ~20% growth and the company expects this segment to
break even at EBIT level by FY13.
Lower tobacco prices to drive cigarette margin
We believe ITC’s cigarette EBIT margins in FY12 will benefit from the
~10% decline in domestic tobacco prices as against a 20-40%
increase in the past two years. ITC has already procured a large
portion of the tobacco for the FY12 cigarette production at ~5-10%
yoy lower prices. The lower input cost scenario coupled with ~5%
price hikes will drive profitability in FY12.
Margin to expand; earnings to witness ~18% CAGR
ITC remains one of our top picks in the sector given the strong
resilience in its core cigarette business. No change in the excise duty
structure on cigarettes in the FY12 union budget came as a major
positive surprise for ITC. We believe the earnings growth outlook for
ITC is improving, especially in the core cigarette segment, which is
witnessing a revival in volume growth coupled with improved
profitability across all the non-cigarettes segments. We expect ITC to
register ~18% CAGR in net profit over FY11-13. At the current
market price of Rs198, the stock is trading at 22.1x FY13E EPS of
Rs8.9. We maintain Buy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cigarette volumes jump 8% yoy; highest in past ten years
ITC’s core cigarette business continues to display resilience with
strong 8% volume growth during Q1 FY12 – highest in the past ten
years. Cigarette EBIT margin witnessed a sharp 200bps expansion
led by ~5% price hikes undertaken by the company. We expect
further price hikes going ahead, which would ensure healthy margin
expansion. With firm consumer demand and strong brand portfolio,
we believe ITC is well-positioned to grow cigarette volumes at 6-8%
in FY12 (on a weak base of FY11).
Other-FMCG segment to break even by FY13
With the improving profitability in the foods segment (key factor in
narrowing FMCG losses) driven by higher margins in biscuits and
staples segment, the other-FMCG segment is becoming a stronger
business. Personal care segment is also gaining significant market
share in the key categories. The other-FMCG division continues to
record ~20% growth and the company expects this segment to
break even at EBIT level by FY13.
Lower tobacco prices to drive cigarette margin
We believe ITC’s cigarette EBIT margins in FY12 will benefit from the
~10% decline in domestic tobacco prices as against a 20-40%
increase in the past two years. ITC has already procured a large
portion of the tobacco for the FY12 cigarette production at ~5-10%
yoy lower prices. The lower input cost scenario coupled with ~5%
price hikes will drive profitability in FY12.
Margin to expand; earnings to witness ~18% CAGR
ITC remains one of our top picks in the sector given the strong
resilience in its core cigarette business. No change in the excise duty
structure on cigarettes in the FY12 union budget came as a major
positive surprise for ITC. We believe the earnings growth outlook for
ITC is improving, especially in the core cigarette segment, which is
witnessing a revival in volume growth coupled with improved
profitability across all the non-cigarettes segments. We expect ITC to
register ~18% CAGR in net profit over FY11-13. At the current
market price of Rs198, the stock is trading at 22.1x FY13E EPS of
Rs8.9. We maintain Buy.
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