ITC’s recorded 11.8% yoy growth in revenues at Rs91.5bn during Q4 FY14. Cigarette revenues grew by 12.6% yoy to Rs40.8bn while EBIT margins expanded by 280bps to 34.3%. Cigarette volumes declined by ~2% yoy
Other-FMCG revenues grew by 13.7% yoy to Rs23.1bn, profit at EBIT level more than doubled to Rs431mn. As expected the segment broke even at EBIT level during FY14 with Rs218mn profit Vs Rs813mn loss in FY13
OPM expanded by ~190bps to 35% aided by 110bps drop in raw material and overhead cost respectively. Net profit matched our expectations by recording 18.2% yoy growth at ~Rs23bn
We expect ITC to witness a revenue/PAT CAGR of 15%/16% respectively over FY14-16. Maintain BUY with a 9-mth price target of Rs398
|(Rs m)||Q4 FY14||Q4 FY13||% yoy||Q3 FY14||% qoq|
|Other operating income||934||771||21.1||1,037||(10.0)|
|OPM (%)||35.0||33.1||194 bps||38.1||(306) bps|
|Effective tax rate (%)||(29.3)||(29.4)||-||(30.7)||-|
|PAT margin (%)||24.9||23.6||134 bps||27.7||(275) bps|
|Ann. EPS (Rs)||11.5||9.8||17.7||12.0||(4.5)|
Segment-wise net sales and EBIT break-up – Q4 FY14
|(Rs mn)||Revenues||yoy (%)||EBIT||yoy (%)|
|FMCG - Others||23,145||13.7||431||263.0|
|Paper & Packaging||12,612||19.3||1,884||0.1|
Cigarette and other-FMCG segment drives revenue growth
ITC recorded 11.8% yoy revenue growth during Q4 FY14 at Rs91.5bn during Q4 FY14 - almost in line with our expectations, driven by strong growth in cigarette and other-FMCG business. Despite steep price hikes, ITC managed to restrict cigarette volume decline at ~2% yoy (our expectation of ~1-2%), partly aided by higher contribution of 64mm cigarettes (~10% of sales against ~3-4% last year).
Cigarette segment registered strong 12.6% yoy revenue growth at Rs40.8bn. Other-FMCG segment recorded 13.7% yoy increase at Rs23bn driven by strong growth in atta, noodles and biscuits (double digit) segment. Paper & packaging segment recorded 19.3% yoy growth at Rs12.6bn driven by recent capacity additions in paperboards and packaging. Impacted by economic slowdown, hotels segment registered mere ~2% yoy growth (on a high base). However, we believe hotels segment will witness double digit revenue growth in FY15 driven by ARR and occupancy growth. A slower 8% yoy growth agri segment restricted further topline growth.
Lower raw material and overhead cost drive operating margins
OPM expanded by 190bps to 35% aided by ~110bps decline in raw material and overhead cost respectively. Cigarette EBIT for the quarter grew by 20.8% yoy to 25.5bn while EBIT margins expanded by 280bps to 34.3%. Other-FMCG segment posted a profit of Rs431mn at EBIT level against Rs119mn in Q4 FY13 aided by improved profitability in the foods segment. As expected the other-FMCG segment has broken-even in the current fiscal (profit of Rs218mn Vs loss of Rs813mn at EBIT level). Hotels segment registered 47.3% yoy increase at Rs599mn in EBIT on a low base, aided by superior performance by ITC Grand Chola. Paperboards division witnessed flat profit growth while agri business reported ~14% yoy increase in profit at EBIT level on a low base.
|As a % of net sales||Q4 FY14||Q4 FY13||bps yoy||Q3 FY14||bps qoq|
Segment wise EBIT margins (%)
|Segments (as a % of sales)||Q4 FY14||Q4 FY13||bps yoy||Q3 FY14||bps qoq|
|FMCG - Others||1.9||0.6||128||0.5||136|
|Paper & Packaging||14.0||16.7||(268)||17.3||(330)|
Net profit matches expectations
Net profit for the quarter was in line with our expectations at Rs22.8bn – up by 18.2% yoy partly led by improved operating efficiency and lower interest cost. The growth could have been even better but for lower other income and higher depreciation cost.
Dominance to continue… maintain Buy
ITC remains one of our top picks in the sector given the strong resilience in its core cigarette business. At current market price, the stock is trading at 23x FY16E EPS of Rs14.9, a discount to large caps like HUL and Nestle. The current valuations ignore positives such as ITC’s dominant position in the cigarettes business and the consistent strong performance of its other-FMCG business. We remain confident of ITC’s pricing power to pass on any tax or duty hike to consumers and deliver mid-teen EBIT growth in cigarettes business. Further, higher cigarette volumes driven by 64mm cigarettes, break-even in other-FMCG business and steady ~15% CAGR in earnings is likely to help sustain re-rating. We maintain Buy with a 9-mth price target of Rs398.
|Y/e 31 Mar (Rs m)||FY13||FY14E||FY15E||FY16E|
|yoy growth (%)||19.4||11.1||15.9||13.7|
|yoy growth (%)||20.4||18.4||16.9||15.5|