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ITC
• With a leading position in its various businesses, we expect ITC
to sustain its gross revenue growth at 12.6% (CAGR from FY11-
14E), driven by healthy growth in FMCG (18.6%), agri business
(16.3%) and paperboards (13.7%) with a moderate growth in
cigarette (10.1%) and hotel (8.8%) revenues
• ITC is the market leader in the Indian cigarettes industry and
enjoys ~75% volume share (FY11). Its cigarette revenues
(gross) have grown by ~1.5x, from | 12833.7 crore in FY07 to |
19827.6 crore in FY11, largely driven by price growth of 11.3%
with volume growth remaining flat. Being a dominant player,
passing on the impact of higher taxes through price increases
has not been tough for ITC. Therefore, we expect revenues from
cigarettes to continue growing at a CAGR of 10.1% (FY11-14E)
driven by 5.3% price growth and a lower volume growth of
4.5%
• Comparing with global peers like British American tobacco
(BAT), Philip Morris and Japan Tobacco, ITC should trade at a
premium given the opportunity size of the Indian market and
expected higher earning growth. Simultaneously, a substantial
reduction in FMCG losses and visibility of break-even would
result in the FMCG segment commanding a higher valuation
than the historic average. We remain positive on the stock from
a 9 to 12 months perspective
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