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UBS Investment Research
ITC
Dairy foray imminent
„ Event: ITC Chairman speech hinted at dairy sector entry
ITC Chairman Mr. YC Deveshwar in his AGM speech mentioned that as part of
the company’s sustainability programme, ITC’s Animal Husbandry Programme
has reached ~0.5m milch animals, leading to an increase in milk yields. He
mentioned that this effort could form part of ITC’s FMCG sector businesses, in
effect hinting at dairy product launches in the near future.
„ Impact: expansion in the scope of the consumer business
ITC’s food business (65% of other FMCG) made ~Rs29bn in revenues in FY11.
We expect this segment to get a major thrust as ITC enters the milk/milk products
business. India is the largest producer of milk globally. The Gujarat Co-operative
Milk Marketing Federation (GCMMF) estimates the milk market size to be
~US$60bn; the organized branded component is ~20% of the total.
„ Action: focus on building share and launching quality products
In each of the consumer businesses that ITC has entered, it has systematically
targeted the main body of the market and not confined itself to a premium niche. It
has targeted a leadership position or top-three position within five years of launch,
making sizeable businesses with sustainable models around each segment. We
believe ITC is creating a foundation for its consumer business and will transform
into a consumer conglomerate.
„ Valuation: ITC is our top pick
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%.
Q 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 agribusiness as its core businesses.
Q 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
Dairy foray imminent
„ Event: ITC Chairman speech hinted at dairy sector entry
ITC Chairman Mr. YC Deveshwar in his AGM speech mentioned that as part of
the company’s sustainability programme, ITC’s Animal Husbandry Programme
has reached ~0.5m milch animals, leading to an increase in milk yields. He
mentioned that this effort could form part of ITC’s FMCG sector businesses, in
effect hinting at dairy product launches in the near future.
„ Impact: expansion in the scope of the consumer business
ITC’s food business (65% of other FMCG) made ~Rs29bn in revenues in FY11.
We expect this segment to get a major thrust as ITC enters the milk/milk products
business. India is the largest producer of milk globally. The Gujarat Co-operative
Milk Marketing Federation (GCMMF) estimates the milk market size to be
~US$60bn; the organized branded component is ~20% of the total.
„ Action: focus on building share and launching quality products
In each of the consumer businesses that ITC has entered, it has systematically
targeted the main body of the market and not confined itself to a premium niche. It
has targeted a leadership position or top-three position within five years of launch,
making sizeable businesses with sustainable models around each segment. We
believe ITC is creating a foundation for its consumer business and will transform
into a consumer conglomerate.
„ Valuation: ITC is our top pick
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%.
Q 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 agribusiness as its core businesses.
Q 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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