ITC Ltd (Q3 FY13)

Cigarette volumes recorded ~1.5% yoy increase partly aided by the successful launch of 64mm cigarettes.

Jan 21, 2013 10:01 IST India Infoline News Service

CMP Rs287, Target Rs327, Upside 14.1%

  • Results beat expectations. Revenues grew by ~23% yoy to Rs76.3bn, driven by healthy growth in cigarettes, Other-FMCG and agri segment
  • Cigarette volumes increase by ~1.5% yoy; EBIT margins expand by 110bps to 32.8%. Losses in the Other-FMCG segment reduced to Rs240mn
  • OPM declined by 80bps to 36.4%. A drop of 420bps in overhead cost mitigates high outsourcing cost impact. Net profit for the quarter surpassed our expectations by recording ~21% yoy growth at Rs20.5bn
  • We expect ITC to witness a revenue/PAT CAGR of 16.2%/18.4% respectively over FY12-14. Maintain BUY with a 9-mth price target of Rs327
Result table (Standalone)
(Rs m) Q3 FY13 Q3 FY12 % yoy Q2 FY13 % qoq
Net sales 76,271 61,954 23.1 66,522 14.7
Material costs (30,770) (21,872) 40.7 (25,766) 19.4
Personnel costs (3,462) (2,887) 19.9 (4,125) (16.1)
Other overheads (14,311) (14,208) 0.7 (13,557) 5.6
Operating profit 27,727 22,988 20.6 23,075 20.2
OPM (%) 36.4 37.1 (75) bps 34.7 167 bps
Depreciation (2,052) (1,739) 18.0 (1,948) 5.4
Interest (252) (223) 12.6 (138) 82.8
Other income 4,148 3,741 10.9 2,376 74.6
PBT 29,572 24,767 19.4 23,366 26.6
Tax (9,053) (7,757) 16.7 (7,344) 23.3
Effective tax rate (%) (30.6) (31.3) - (31.4) -
Reported PAT 20,519 17,010 20.6 16,021 28.1
PAT margin (%) 26.9 27.5 (55) bps 24.1 282 bps
Ann. EPS (Rs) 10.5 8.8 19.3 8.2 28.0
Source: Company, India Infoline Research

Segment-wise net sales and EBIT break-up
Segments Q3 FY13
(Rs mn) Revenues yoy (%) EBIT yoy (%)
Cigarettes 36,574 13.1 22,335 21.1
FMCG - Others 17,827 30.1 (240) (48.6)
Hotels 3,095 11.0 555 (45.5)
Agri Business 16,310 43.1 1,726 21.9
Paper & Packaging 10,616 8.5 2,286 1.9
Total 84,420 20.6 26,663 17.7
Inter-segment revenue (8,150) 1.3 - -
Net sales 76,271 23.1 - -
Source: Company, India Infoline Research

Cigarette and FMCG - Others segment fuel revenue growth

ITC reported 23% yoy jump in revenues at Rs76.3bn (above our expectations of Rs73bn) during Q3 FY13 driven by 13% yoy growth in core cigarettes segment. Cigarette volumes recorded ~1.5% yoy increase partly aided by the successful launch of 64mm cigarettes. A 43% yoy jump in agri (driven by wheat leaf tobacco and soya exports) and 30% yoy increase in Other-FMCG revenues (led by foods and personal care business) further fuelled revenue growth. The growth could have been even better but for slower growth in hotels (due to weak economic environment) and paper segment revenues.


Drop in overhead cost offsets high outsourcing cost impact, cigarette EBIT margins expand by 110bps

OPM declined by 80bps (on a high base) to 36.4% due to sharp 450bps jump in outsourcing cost (included in raw material cost). A 420bps drop in overhead cost partly mitigated the impact. Cigarette EBIT margins witnessed 110bps expansion at 32.8%. Price hikes coupled with premiumisation of its portfolio have helped ITC improve cigarette EBIT margins. ITC has managed to reduce losses in the Other-FMCG segment to Rs240mn (Rs466mn in Q3 FY12) as profits from the foods segment are increasing sequentially. We expect this segment to breakeven by FY13/Q1 FY14.


Cost analysis
As a % of net sales Q3 FY13 Q3 FY12 bps yoy Q2 FY13 bps qoq
Material costs 40.3 35.3 504 38.7 161
Personnel costs 4.5 4.7 (12) 6.2 (166)
Other overheads 18.8 22.9 (417)

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