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Key highlight of Q1FY12, is the return to positive volume growth (8% E) by ITC, and the strong
broad-based growth across all its key business. Cigarettes, paper, agri and hotels have all
delivered 20%+ EBIT growth. EPS at Rs1.72 for Q2FY12, looks on track to achieve our Rs7.72
for FY12. Buy maintained.
Q1FY11 revenue growth at 18%
ITC has achieved a revenue growth of 17.9%, with cigarette business growing at 12.9%, other
FMCG at 19.4%, hotels at 12.2%, agri business at 26.5%, and paper business at 22%.
The cigarette business revenue growth at 12.9% is driven by a 8% volume growth as per our
estimates. This volume recovery has to be viewed in the context of the 2.8% volume decline
which ITC recorded in FY11 due to sharp price hikes induced by 10% excise duty hikes.
The agri business growth has accelerated at 26.5%, as ITC has increased trading activities of
some other agri-commodities, so the mix of the high margin leaf tobacco business has gone
down from the Q4FY11.
Hotel business has recorded slightly lower-than-expected revenue growth due to market
conditions.
EBITDA growth at 17.2% yoy
The growth has been strong across all of ITC's key business. Cigarette business recorded
20.8% EBIT growth, which we believe would moderate in the rest of FY12, as the base of
margins gets higher from 2QFY12. Other FMCG losses have increased marginally from
4QFY11 levels, but we expect the losses in the rest of FY12.
Agri-business EBIT growth at 27.7% has been strong driven by the profitable leaf tobacco
exports of ITC. However, the slip in margins to 9.2% from 11.9% in Q4FY11 is due to more
due to mix in the portfolio with higher contribution from other commodity exports.
Paper and hotel business performed in line with expectations, growing EBIT at 20.4% and
33.2% respectively.
Earnings outlook remains strong
While, the recent hikes in VAT in certain important states like Tamil Nadu does call from some
minor price hikes by ITC (around 0.8%) to neutralise, we believe the structural volume growth
potential for cigarettes in India remains strong. We believe the recent Government level
interventions to curb the rampant expansion in the sales of chewing tobacco by way of ban on
sales through plastic sachets, hikes in VAT in many states on chewing tobacco, and growing
government-sponsored awareness programme of the adverse health effects of chewing
tobacco could on the margin deflect some dual consumers to cigarettes.
ITC's other FMCG business could be the next value driver as the business is reaching critical
scale in many segments. Overall it would have a revenue of Rs53bnE in FY12, and continues
to deliver growth of 19-20%. We expect the business break-even in FY13, and turn profitable
beyond that.
We have a EPS growth estimate of 19%. While the lower base of 1QFY11, has driven a
higher PAT growth of 24.5%, we remain comfortable with our full year estimates of Rs7.72
EPS, and maintain our recommendation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key highlight of Q1FY12, is the return to positive volume growth (8% E) by ITC, and the strong
broad-based growth across all its key business. Cigarettes, paper, agri and hotels have all
delivered 20%+ EBIT growth. EPS at Rs1.72 for Q2FY12, looks on track to achieve our Rs7.72
for FY12. Buy maintained.
Q1FY11 revenue growth at 18%
ITC has achieved a revenue growth of 17.9%, with cigarette business growing at 12.9%, other
FMCG at 19.4%, hotels at 12.2%, agri business at 26.5%, and paper business at 22%.
The cigarette business revenue growth at 12.9% is driven by a 8% volume growth as per our
estimates. This volume recovery has to be viewed in the context of the 2.8% volume decline
which ITC recorded in FY11 due to sharp price hikes induced by 10% excise duty hikes.
The agri business growth has accelerated at 26.5%, as ITC has increased trading activities of
some other agri-commodities, so the mix of the high margin leaf tobacco business has gone
down from the Q4FY11.
Hotel business has recorded slightly lower-than-expected revenue growth due to market
conditions.
EBITDA growth at 17.2% yoy
The growth has been strong across all of ITC's key business. Cigarette business recorded
20.8% EBIT growth, which we believe would moderate in the rest of FY12, as the base of
margins gets higher from 2QFY12. Other FMCG losses have increased marginally from
4QFY11 levels, but we expect the losses in the rest of FY12.
Agri-business EBIT growth at 27.7% has been strong driven by the profitable leaf tobacco
exports of ITC. However, the slip in margins to 9.2% from 11.9% in Q4FY11 is due to more
due to mix in the portfolio with higher contribution from other commodity exports.
Paper and hotel business performed in line with expectations, growing EBIT at 20.4% and
33.2% respectively.
Earnings outlook remains strong
While, the recent hikes in VAT in certain important states like Tamil Nadu does call from some
minor price hikes by ITC (around 0.8%) to neutralise, we believe the structural volume growth
potential for cigarettes in India remains strong. We believe the recent Government level
interventions to curb the rampant expansion in the sales of chewing tobacco by way of ban on
sales through plastic sachets, hikes in VAT in many states on chewing tobacco, and growing
government-sponsored awareness programme of the adverse health effects of chewing
tobacco could on the margin deflect some dual consumers to cigarettes.
ITC's other FMCG business could be the next value driver as the business is reaching critical
scale in many segments. Overall it would have a revenue of Rs53bnE in FY12, and continues
to deliver growth of 19-20%. We expect the business break-even in FY13, and turn profitable
beyond that.
We have a EPS growth estimate of 19%. While the lower base of 1QFY11, has driven a
higher PAT growth of 24.5%, we remain comfortable with our full year estimates of Rs7.72
EPS, and maintain our recommendation.
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