ITC (Q1 FY13)

India Infoline News Service | Mumbai |

Cigarette volumes remained flat despite steep price hikes of ~20% during the quarter. Cigarette EBIT margins expanded by 140bps to 31.3%

CMP Rs249, Target Rs275, Upside 10.4%

Revenues grew by 15.3% yoy to Rs66.5bn, driven by healthy 15% yoy growth in cigarettes and 23% yoy in Other-FMCG segment – below our expectations of Rs67.8bn. Mere ~1% yoy growth in hotels and 1% yoy decline in agri segment revenues restricted further growth momentum
Cigarette volumes remained flat despite steep price hikes of ~20% during the quarter. Cigarette EBIT margins expanded by 140bps to 31.3%
Losses in the Other-FMCG segment reduced to Rs388mn from Rs763mn in Q1 FY12
OPM witnessed 220bps expansion at 34.7% aided by a 130bps drop in raw material cost. Net profit for the quarter matched our expectations by recording ~20% yoy growth at Rs16bn
We expect ITC to witness a revenue/PAT CAGR of 14.5%/17.1% respectively over FY12-14. Maintain BUY with a 9-mth price target of Rs275


Result table
(Rs m) Q1 FY13 Q1 FY12 % yoy Q4 FY12 % qoq
Net sales 66,522 57,675 15.3 68,614 (3.0)
Material costs (18,187) (15,492) 17.4 (22,066) (17.6)
Purchase of traded goods (7,579) (7,609) (0.4) (5,975) 26.8
Personnel costs (4,125) (3,885) 6.2 (3,323) 24.1
Other overheads (13,557) (11,960) 13.3 (15,549) (12.8)
Operating profit 23,075 18,729 23.2 21,701 6.3
OPM (%) 34.7 32.5 221 bps 31.6 306 bps
Depreciation (1,948) (1,665) 17.0 (1,880) 3.6
Interest (138) (200) (31.3) (148) (7.2)
Other income 2,376 2,506 (5.2) 3,012 (21.1)
PBT 23,366 19,370 20.6 22,684 3.0
Tax (7,344) (6,043) 21.5 (6,540) 12.3
Effective tax rate (%) (31.4) (31.2) - (28.8) -
Reported PAT 16,021 13,327 20.2 16,144 (0.8)
PAT margin (%) 24.1 23.1 98 bps 23.5 56 bps
Ann. EPS (Rs) 8.2 6.9 18.9 8.3 (0.8)
Source: Company, India Infoline Research

Segment-wise net sales and EBIT break-up
Segments Q1 FY13
(Rs mn) Revenues yoy (%) EBIT yoy (%)
Cigarettes 33,042 15.0 18,998 20.5
FMCG - Others 14,731 23.0 (388) (49.1)
Hotels 2,324 0.8 262 (48.9)
Agri Business 16,914 (0.9) 1,714 9.1
Paper & Packaging 10,361 8.0 2,647 16.6
Total 77,372 11.0 23,233 20.0
Inter-segment revenue (10,850) (9.7) - -
Net sales 66,522 15.3 - -
Source: Company, India Infoline Research

Hotels and agri segment restrict revenue growth momentum
ITC reported 15.3% yoy increase in revenues at Rs66.5bn (below our expectations of Rs67.8bn) during Q1 FY13 driven by 15% yoy growth in core cigarettes segment. Cigarette volumes remained flat despite steep price hikes of ~20% during the quarter. A 23% yoy increase in Other-FMCG revenues (led by strong growth in 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 decline in agri (impacted by the surplus leaf tobacco inventory and the prevailing adverse commodity price parities) revenues.

Lower raw material cost fuels OPM, cigarette EBIT margins expand by 140bps
Operating margins expanded by 220bps to 34.7% fuelled by a 130bps drop in raw material cost and 50bps/40bps decline in staff/overhead cost. Cigarette EBIT margins witnessed a sharp 140bps expansion at 31.3%. Price hikes (~20% in Q1 FY13) coupled with premiumisation of its portfolio have helped ITC improving cigarette EBIT margins. ITC has managed to reduce losses in the Other-FMCG segment to Rs388mn (Rs763mn in Q1 FY12) as profits from the foods segment are increasing sequentially. The management expects this segment to break even by FY13.

Cost analysis
As a % of net sales Q1 FY13 Q1 FY12 bps yoy Q4 FY12 bps qoq
Material costs 27.3 26.9 48 32.2 (482)
Purchase of traded goods 11.4 13.2 (180) 8.7 269
Personnel costs 6.2 6.7 (53) 4.8 136
Other overheads 20.4 20.7 (36) 22.7 (228)
Total costs 65.3 67.5 (221) 68.4 (306)
Source: Company, India Infoline Research

Segment wise EBIT margins (%)
Segments (as a % of sales) Q1 FY13 Q1 FY12 bps yoy Q4 FY12 bps qoq
Cigarettes 31.3 29.9 142 30.9 42
FMCG - Others (2.6) (6.4) 373 (1.0) (160)
BSE 264.75 0.85 (0.32%)
NSE 264.60 0.35 (0.13%)

***Note: This is a NSE Chart

 

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