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Cigarette volumes spurt
ITC’s cigarette volumes rose 8%+ YoY from -3% last year which has
been the biggest positive from the results. Sequential increase (though
seasonal) in FMCG losses was the disappointment. Rising trend in state
VAT and possibility of excise duty increase in the next round continues to
be the sources of investor worry, ITC has exhibited its pricing power
enough for us to have a comfort on the earnings growth potential. The
valuations are rich but we believe those will sustain.
Results better than expected
ITC’s 1QFY12 earnings grew 25% YoY to Rs13.3bn – 3% higher than
expected due to higher other income. Operating other income tripled YoY to
Rs927m due to higher exports incentives. Ebitda increased 17% YoY which
was 2% below estimates – primarily due to non-segmental corporate
expenses. Total segmental ebit was in line with expectations.
Cigarette ebit growth of 20%; highest in the last seven quarters
Cigarette revenue growth of 13% YoY was in line with expectations and the
8.5% cigarette volume growth was the key positive from the results.
Cigarette ebit growth of 21% YoY was driven by better than expected 2ppts
margin expansion. Excise duties as a % of gross sales was down 130bps to
45%. We note that over the last three years, this ratio has come off from
50% - partially offset by an increase in VAT.
Non-cigarette business Ebit grows 38% YoY
FMCG business loss was lower 15% YoY although was up 22% QoQ. The
higher sequential number is partially attributable to seasonality and also to
the ramp-up in noodles. ITC is now the second largest player in noodles. Agri
business margins remained stable at 9%. While seasonally a weak quarter for
the hotels business, ebit up 33% YoY. Paperboards margins were stable at
22%. Expansion projects in paperboards and hotels are underway.
Valuations at 25x should sustain
ITC has outperformed the markets by ~30ppt in the last 12-months, thanks
to strong earnings growth momentum. We expect this to continue and
continue to rate ITC as Opf given the pricing power it enjoys in the core
cigarette category; input cost too is not a concern, both of which are in
contrast to the general trend in consumer sector. We raise our target price to
Rs225/sh as we roll over target multiple to Mar-13 (25x).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cigarette volumes spurt
ITC’s cigarette volumes rose 8%+ YoY from -3% last year which has
been the biggest positive from the results. Sequential increase (though
seasonal) in FMCG losses was the disappointment. Rising trend in state
VAT and possibility of excise duty increase in the next round continues to
be the sources of investor worry, ITC has exhibited its pricing power
enough for us to have a comfort on the earnings growth potential. The
valuations are rich but we believe those will sustain.
Results better than expected
ITC’s 1QFY12 earnings grew 25% YoY to Rs13.3bn – 3% higher than
expected due to higher other income. Operating other income tripled YoY to
Rs927m due to higher exports incentives. Ebitda increased 17% YoY which
was 2% below estimates – primarily due to non-segmental corporate
expenses. Total segmental ebit was in line with expectations.
Cigarette ebit growth of 20%; highest in the last seven quarters
Cigarette revenue growth of 13% YoY was in line with expectations and the
8.5% cigarette volume growth was the key positive from the results.
Cigarette ebit growth of 21% YoY was driven by better than expected 2ppts
margin expansion. Excise duties as a % of gross sales was down 130bps to
45%. We note that over the last three years, this ratio has come off from
50% - partially offset by an increase in VAT.
Non-cigarette business Ebit grows 38% YoY
FMCG business loss was lower 15% YoY although was up 22% QoQ. The
higher sequential number is partially attributable to seasonality and also to
the ramp-up in noodles. ITC is now the second largest player in noodles. Agri
business margins remained stable at 9%. While seasonally a weak quarter for
the hotels business, ebit up 33% YoY. Paperboards margins were stable at
22%. Expansion projects in paperboards and hotels are underway.
Valuations at 25x should sustain
ITC has outperformed the markets by ~30ppt in the last 12-months, thanks
to strong earnings growth momentum. We expect this to continue and
continue to rate ITC as Opf given the pricing power it enjoys in the core
cigarette category; input cost too is not a concern, both of which are in
contrast to the general trend in consumer sector. We raise our target price to
Rs225/sh as we roll over target multiple to Mar-13 (25x).
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