ITC (Q4 FY12)

India Infoline News Service | Mumbai |

Revenues beat expectations, up by ~18% yoy at Rs68.6bn, driven by strong growth in cigarettes, Other-FMCG and agri segments.

CMP Rs232, Target Rs268, Upside 15.6%

  • Revenues beat expectations, up by ~18% yoy at Rs68.6bn, driven by strong growth in cigarettes, Other-FMCG and agri segments. Cigarette margins expanded by 210bps to 30.9% on a low base

  • Losses in the Other-FMCG segment reduced to Rs167mn against Rs678mn in Q4 FY11

  • OPM witnessed 90bps expansion at 31.6% aided by a 140bps drop in raw material cost. Net profit for the quarter matched our expectations by recording strong 26% yoy growth at Rs16bn

  • We expect ITC to witness a 14.5% CAGR in revenues and 17% in net profit over FY12-14. Maintain BUY with a 9-mth price target of Rs268

Result table
(Rs m) Q4 FY12 Q4 FY11 % yoy Q3 FY12 % qoq
Net sales 68,614 58,363 17.6 61,954 10.7
Material costs (22,066) (20,018) 10.2 (19,407) 13.7
Purchase of traded gds (5,975) (4,670) 27.9 (2,468) 142.1
Personnel costs (3,323) (2,736) 21.4 (2,887) 15.1
Other overheads (15,549) (13,003) 19.6 (14,193) 9.6
Operating profit 21,701 17,937 21.0 23,000 (5.6)
OPM (%) 31.6 30.7 89 bps 37.1 (550) bps
Depreciation (1,880) (1,642) 14.5 (1,739) 8.1
Interest (148) (198) (25.2) (223) (33.7)
Other income 3,012 2,271 32.6 3,729 (19.2)
PBT 22,684 18,368 23.5 24,767 (8.4)
Tax (6,540) (5,553) 17.8 (7,757) (15.7)
Effective tax rate (%) (28.8) (30.2) - (31.3) -
Reported PAT 16,144 12,815 26.0 17,010 (5.1)
PAT margin (%) 23.5 22.0 157 bps 27.5 (393) bps
Ann. EPS (Rs) 8.3 6.6 24.7 8.7 (5.4)
Source: Company, India Infoline Research

Segment-wise net sales and EBIT break-up
Segments Q4 FY12
(Rs mn) Revenues yoy (%) EBIT yoy (%)
Cigarettes 32,499 17.4 17,579 19.5
FMCG - Others 16,165 23.2 (167) (75.4)
Hotels 2,858 (4.8) 829 (16.8)
Agri Business 14,142 30.7 1,056 5.8
Paper & Packaging 9,799 6.9 1,958 1.1
Total 75,464 18.3 21,254 18.4
Inter-segment revenue (6,850) 26.2 - -
Net sales 68,614 17.6 - -
Source: Company, India Infoline Research

Cigarettes, Other-FMCG & agri business fuel revenue growth

ITC reported 17.6% yoy increase in revenues at ~Rs68.6bn during Q4 FY12 driven by 17.4% yoy growth in core cigarettes segment – ahead of our expectations of Rs66.6bn. A sharp 30.7% yoy increase in agri and 23.2% yoy in Other-FMCG (led by strong growth in foods and personal care business) revenues further fuelled revenue growth. The revenue growth could have been even better but for slower growth in Paper and packaging and decline in hotels segment revenues.


Lower raw material cost fuel OPM, cigarette EBIT margins expand by 210bps

Operating margins expanded by 90bps to 31.6% fuelled by a 140bps drop in raw material cost. Higher staff and overhead cost restricted further margin expansion. Cigarette EBIT margins witnessed a sharp 210bps expansion at 30.9%, though on a low base. Price hikes 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 Rs167mn (Rs678mn in Q4 FY11) as profits from the foods segment are increasing sequentially. The management expects this segment to breakeven at EBIT level by FY13.


Cost analysis
As a % of net sales Q4 FY12 Q4 FY11 bps yoy Q3 FY12 bps qoq
Material costs 32.2 34.3 (214) 31.3 84
Purchase of traded goods 8.7 8.0 71
BSE 261.55 [4.05] ([1.52]%)
NSE 261.55 [4.70] ([1.77]%)

***Note: This is a NSE Chart

 

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