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EARNINGS REVIEW
ITC (ITC.BO)
Neutral Equity Research
In line with expectations: Robust volumes, steady margins
What surprised us
ITC reported 2QFY12 net sales of Rs59.7bn (18% yoy, 2% above GSe) and
PAT of Rs15.1bn (21% yoy, 3% above GSe). Higher-than-expected
revenues were led by cigarettes, which grew 14% yoy, driven by 8%
volumes, 3% mix and 3% pricing growth. After providing for higher VAT
taxation, ITC had a price growth of 3% which led to EBIT margin
expanding to 31.5%, up 120 bp yoy and in-line with our estimates. FMCGOthers saw faster sales growth of 27% yoy in 2QFY12 vs. 19% in 1QFY12
and 23% in FY11. EBIT margin for the FMCG-Others business fell by 217 bp
yoy driven primarily by operating leverage, which helped mitigate sharp
increase in commodity costs. Margins of the paper and paperboard
business exceeded our estimates driven by better mix and realizations.
Agri business EBIT grew 18% yoy on higher trading volumes and
improved realizations in soya, wheat and coffee.
What to do with the stock
We have increased our FY12E-FY14E EPS estimates by 2%-3% to factor in
better mix and pricing for the cigarettes business and increased margins for
the Paper business. ITC has taken price increases of 3% on its cigarette
portfolio FYTD against average increase of 9% over FY06-11, thus providing
margin buffer in case of higher costs/taxation. While we remain constructive
on the growth and cash generation potential of ITC, we believe this is already
reflected in current valuations. Our new 12m target of Rs201 (from Rs195) is
based on 22X FY13E EPS, which is inline with its 3-year avg. Key risks -Upside:
(1) No increase in VAT/Excise on cigarettes, (2) better-than-expected
occupancy at hotels; Downside: (1) Higher-than-expected increase in tax rates,
(2) continued inflation affecting demand.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
EARNINGS REVIEW
ITC (ITC.BO)
Neutral Equity Research
In line with expectations: Robust volumes, steady margins
What surprised us
ITC reported 2QFY12 net sales of Rs59.7bn (18% yoy, 2% above GSe) and
PAT of Rs15.1bn (21% yoy, 3% above GSe). Higher-than-expected
revenues were led by cigarettes, which grew 14% yoy, driven by 8%
volumes, 3% mix and 3% pricing growth. After providing for higher VAT
taxation, ITC had a price growth of 3% which led to EBIT margin
expanding to 31.5%, up 120 bp yoy and in-line with our estimates. FMCGOthers saw faster sales growth of 27% yoy in 2QFY12 vs. 19% in 1QFY12
and 23% in FY11. EBIT margin for the FMCG-Others business fell by 217 bp
yoy driven primarily by operating leverage, which helped mitigate sharp
increase in commodity costs. Margins of the paper and paperboard
business exceeded our estimates driven by better mix and realizations.
Agri business EBIT grew 18% yoy on higher trading volumes and
improved realizations in soya, wheat and coffee.
What to do with the stock
We have increased our FY12E-FY14E EPS estimates by 2%-3% to factor in
better mix and pricing for the cigarettes business and increased margins for
the Paper business. ITC has taken price increases of 3% on its cigarette
portfolio FYTD against average increase of 9% over FY06-11, thus providing
margin buffer in case of higher costs/taxation. While we remain constructive
on the growth and cash generation potential of ITC, we believe this is already
reflected in current valuations. Our new 12m target of Rs201 (from Rs195) is
based on 22X FY13E EPS, which is inline with its 3-year avg. Key risks -Upside:
(1) No increase in VAT/Excise on cigarettes, (2) better-than-expected
occupancy at hotels; Downside: (1) Higher-than-expected increase in tax rates,
(2) continued inflation affecting demand.
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