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UBS Investment Research
ITC
C igarettes lead the way, PAT up 25% YoY
Event: Cigarette revenue up 15.7%, volumes up ~8% YoY
We estimate Q1 volumes rose 8% YoY, while mix and price increases contributed
~7-8% of revenue growth. EBIT margin in cigarettes rose 200bps YoY to 29.9%
for Q1FY12. The increase in volumes is in comparison with a favourable base. We
project ~6-7% volume growth for FY12E, significantly better than the ~2.8%
volume decline for the cigarette business in FY11.
Impact: Q1 revenue up 19.7%, EBITDA up 17%
Net sales grew 19.7% YoY, and EBITDA margins declined 70bps as the
proportion of cigarettes declined from 66% to 64% of total revenue. EBITDA
growth came in at 17% YoY. Other income was 2x of Q1FY11 levels, due to
higher treasury yields. PBT grew 23.4% and PAT grew 24.5% YoY.
Action: ITC–our top pick
With the cigarette business surprising us on volumes and profitability, ITC remains
our top pick in the consumer space as visibility into FY13E volumes is beginning
to get better. We believe GST implementation at ~20% for all-India operations in
February-March 2012 should improve business dynamics.
Valuation: maintain Buy rating, price target of Rs220
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%.
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.
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
C igarettes lead the way, PAT up 25% YoY
Event: Cigarette revenue up 15.7%, volumes up ~8% YoY
We estimate Q1 volumes rose 8% YoY, while mix and price increases contributed
~7-8% of revenue growth. EBIT margin in cigarettes rose 200bps YoY to 29.9%
for Q1FY12. The increase in volumes is in comparison with a favourable base. We
project ~6-7% volume growth for FY12E, significantly better than the ~2.8%
volume decline for the cigarette business in FY11.
Impact: Q1 revenue up 19.7%, EBITDA up 17%
Net sales grew 19.7% YoY, and EBITDA margins declined 70bps as the
proportion of cigarettes declined from 66% to 64% of total revenue. EBITDA
growth came in at 17% YoY. Other income was 2x of Q1FY11 levels, due to
higher treasury yields. PBT grew 23.4% and PAT grew 24.5% YoY.
Action: ITC–our top pick
With the cigarette business surprising us on volumes and profitability, ITC remains
our top pick in the consumer space as visibility into FY13E volumes is beginning
to get better. We believe GST implementation at ~20% for all-India operations in
February-March 2012 should improve business dynamics.
Valuation: maintain Buy rating, price target of Rs220
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%.
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.
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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