Result Update ITC. Accumulate

Transcription

1 ITC Accumulate Result Update Volume growth improvement continues ITC s results came marginally ahead of our expectations. The cigarette business posted ~6% volume growth which was marginally better than estimate of 5%. The company reported strong 12.7% jump in FMCG business. Further, a 12.8% revenue growth in Agri businesses was encouraging as the business reported growth in the second consecutive quarter after lackluster performance in prior four quarters. Volume growth in cigarette business is continuously improving, which is a key positive. Going ahead, we believe that the volume growth would continue to improve with the delay in duty hike. Considering the constant increase in smuggled cigarette contribution we believe that the increase in duties would remain modest whenever it happens. Further, ITC s entry in new FMCG categories and impetus to accelerate growth in existing categories would increase profitability. Maintain PER of 29x FY20E EPS and TP of ` 320. Maintain Accumulate. Operational performance was marginally better than estimate Net sales jumped 7.3% to ` 111bn with ~6% volume growth in the cigarette business. EBITDA grew by 11.8% YoY to ` 42.1bn came in line with estimate. EBITDA margin expanded by 150bps YoY to 38.0% as 360/50bps decline in RM/employee expenses was partially offset by 250bps increase in other expenses. APAT grew by 11.9% YoY to ` 29.5bn came ahead of our expectation. Signs of volume recovery Since FY14, ITC s volumes have declined ~17% due to continuous increase in duties and increasing contribution of smuggled cigarettes. Post FY14, the frequency of duty hikes (at least once in a year) has increased significantly compared to earlier period (once in two years). Going ahead, we believe that the pace of duty increase would moderate which would help the volume growth to improve. (5% vs 4% volume gr earlier est for FY19E). Segmental Performance FMCG business reported 12.7% YoY sales growth, and EBIT of ` 585mn compared to a profit of ` 205mn in. Hotel business posted 20.8% sales growth and EBIT of ` 156mn v/s ` 42mn in. Agri and Paperboards reported 12.8% YoY revenue growth to ` 22.2bn but 7.9% drop in EBIT. Paper & packaging (PPP) revenue was up by 8.8% at ` 14.2bn with 13.4% EBIT growth. Result (` Mn) Particulars YoY (%) QoQ (%) Revenue 110, , , Total Expense 68,629 65, , EBITDA 42,060 37, , Depreciation 3,275 2, , EBIT 38,785 34, ,034 (0.6) Other Income 5,041 4, , Interest (53.5) EBT 41,690 39, ,784 (4.8) Tax 14,145 13, ,813 (4.5) RPAT 27,546 26, ,971 (4.9) APAT 29,547 26, , (bps) (bps) Gross Margin (%) (28) EBITDA Margin (%) (125) NPM (%) (43) 27.1 (217) Tax Rate (%) EBIT Margin (%) (142) CMP ` 288 Target / Upside ` 320 / 11% BSE Sensex 33,690 NSE Nifty 10,030 Scrip Details Equity / FV ` 12,242mn / ` 1 Market Cap ` 3,520bn US$ 48bn 52-week High/Low ` 323/` 250 Avg. Volume (no) 14,108,400 NSE Symbol Bloomberg Code Shareholding Pattern Sep'18(%) ITC ITC IN Promoters 0.0 MF/Banks/FIs 37.7 FIIs 47.6 Public / Others 14.7 Valuation (x) FY18A FY19E FY20E P/E EV/EBITDA ROE (%) RoACE (%) Estimates (` mn) FY18A FY19E FY20E Revenue 406, , ,124 EBITDA 155, , ,542 PAT 112, , ,097 EPS (`) VP Research: Sachin Bobade Tel: sachinb@dolatcapital.com Associate: Nikhat Koor Tel: nikhatk@dolatcapital.com October 26, 2018

2 Segmental Performance Particulars YoY (%) QoQ (%) Remarks Cigarettes Volume growth improved to 6.0%. Steep Revenue 50,261 45, ,276 (2.0) escalation in tax incidence under GST regime continues to weigh on FMCG Cigarettes EBIT 35,791 32, , performance. Margin declined as Kerala floods damaged EBIT Margin (%) inventory and shift to new graphics resulted in higher costs. FMCG Others Robust growth in Branded Packaged Foods. Revenue 31,604 28, , Aashirvaad Atta retains leadership. Increased consumer traction IN Bingo and Tedhe EBIT Medhe. B Natural Juices scaled up volumes, EBIT Margin (%) continued premiumization in confectionery. Personal Care enhanced market standing driven by growth in perfumes and handwash/ bodywash. Margin expansion due to enhanced scale, product mix enrichment and cost management initiatives Hotels Growth was driven by higher room rates, Revenue 3,626 3, , increase in occupancy, strong F&B sales and high operating leverage. Recently launched EBIT ITC Kohenur, Hyderabad continued to receive EBIT Margin (%) good response. Obtained possession of Park Hyatt Goa Resort & Spa in September'18 Agri Business Growth driven by trading opportunities in Revenue 22,197 19, ,513 (29.6) Oilseeds, Pulses, Wheat and Spices. Pressure on legal cigarette volumes, adverse EBIT 2,361 2,562 (7.9) 1, quality and leaf cost escalation pertaining to EBIT Margin (%) Andhra crop, and lower export incentives led to margin contraction Paper & Packaging Growth driven by strong demand and Revenue 14,245 13, , capacity augmentation in Value Added Paperboard and Decor segments. EBIT 3,109 2, , Margin expansion due to strategic EBIT Margin (%) investments in imported pulp substitution, cost competitive fibre chain, product mix enrichment and higher realization. Total Revenue 121, , ,460 (5.1) EBIT 42,001 38, , EBIT Margin (%) Change in estimate FY19E FY20E (` mn) New Old Chg (%) New Old Chg (%) Revenue 438, ,873 (0.6) 477, ,108 (1.0) EBITDA 173, , , ,170 (1.9) Margin (%) bps bps PAT 120, , , ,489 (1.8) EPS (`) (1.8) October 26,

3 Q2FY16 Q2FY16 Q2FY16 Q2FY16 Trend in Net Sales & YoY Growth (%) Trend in Cigarette Volume Growth (%) (5) (10) (2) (5) (8) (11) (14) (17) (14.5) (9.0) (6.0) (5.0)(3.0) Net Sales (` bn)- LHS Growth (%) - RHS Trend in EBITDA & YoY EBITDA growth (%) Trend in Net Profit & YoY Net Profit Growth (%) (5) (5) 10 (10) EBITDA (` bn) - LHS YoY Growth (%) - RHS Net Profit (` bn)- LHS Growth (%) - RHS October 26,

4 Profit and Loss Account (` Mn) FY17A FY18A FY19E FY20E Revenue 400, , , ,124 Total Expense 255, , , ,582 COGS 159, , , ,797 Employees Cost 24,443 24,875 25,856 26,668 Other expenses 70,900 68,091 72,173 75,117 EBIDTA 145, , , ,542 Depreciation 10,380 11,454 11,686 12,846 EBIT 135, , , ,696 Interest Other Income 19,859 21,298 21,989 24,603 Exc. / E.O. items 0 4, EBT 155, , , ,343 Tax 53,021 56,285 62,249 68,246 RPAT 102, , , ,097 Minority Interest Profit/Loss share of associates APAT 102, , , ,097 Balance Sheet (` Mn) FY17A FY18A FY19E FY20E Sources of Funds Equity Capital 12,147 12,204 12,242 12,242 Minority Interest Reserves & Surplus 441, , , ,166 Net Worth 453, , , ,408 Total Debt ,111 4,111 Net Deferred Tax Liability 18,717 19,179 21,200 21,200 Total Capital Employed 472, , , ,719 Applications of Funds Net Block 148, , , ,667 CWIP 35,370 50,168 50,168 50,168 Investments 84, , , ,389 Current Assets, Loans & Advances 273, , , ,105 Inventories 78,640 72,372 80,475 89,026 Receivables 22,075 23,570 25,652 27,937 Cash and Bank Balances 27,473 25,948 49,684 92,986 Loans and Advances 36,387 38,207 41,437 40,611 Other Current Assets 7,559 6,209 6,861 7,544 Less: Current Liabilities & Provisions 69,775 68,355 98, ,610 Payables 25,512 33,822 27,924 30,887 Other Current Liabilities 44,262 34,533 70,773 76,722 Net Current Assets 203, , , ,495 Total Assets 472, , , ,719 E Estimates October 26,

5 Important Ratios Particulars FY17A FY18A FY19E FY20E (A) Margins (%) Gross Profit Margin EBIDTA Margin EBIT Margin Tax rate Net Profit Margin (B) As Percentage of Net Sales (%) COGS Employee Other (C) Measure of Financial Status Gross Debt / Equity Interest Coverage Inventory days Debtors days Average Cost of Debt Payable days Working Capital days FA T/O (D) Measures of Investment AEPS (`) CEPS (`) DPS (`) Dividend Payout (%) BVPS (`) RoANW (%) RoACE (%) RoAIC (%) (E) Valuation Ratios CMP (`) P/E Mcap (` Mn) 3,520,158 3,520,158 3,520,158 3,520,158 MCap/ Sales EV 3,391,946 3,395,287 3,344,586 3,301,283 EV/Sales EV/EBITDA P/BV Dividend Yield (%) (F) Growth Rate (%) Revenue EBITDA EBIT PBT APAT EPS Cash Flow (` Mn) FY17A FY18A FY19E FY20E CFO 119, , , ,117 CFI (82,689) (75,451) (53,664) (22,753) CFF (65,685) (49,382) (71,958) (78,062) FCFF 89,374 95, , ,117 Opening Cash 56,392 27,473 25,948 49,684 Closing Cash 27,473 25,948 49,684 92,986 E Estimates October 26,

6 DART RATING MATRIX Total Return Expectation (12 Months) Buy > 20% Accumulate 10 to 20% Reduce 0 to 10% Sell < 0% Rating and Target Price History (`) ITC Target Price Month Rating TP (`) Price (`) * May-18 Accumulate Jul-18 Accumulate Jul-18 Accumulate Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 * Price as on Recommendation Date DART Team Purvag Shah Managing Director purvag@dolatcapital.com Amit Khurana, CFA Head of Equities amit@dolatcapital.com CONTACT DETAILS Equity Sales Designation Direct Lines Dinesh Bajaj VP - Equity Sales dineshb@dolatcapital.com Kartik Sadagopan VP - Equity Sales kartiks@dolatcapital.com Kapil Yadav VP - Equity Sales kapil@dolatcapital.com Equity Trading Designation P. Sridhar SVP and Head of Sales Trading sridhar@dolatcapital.com Chandrakant Ware VP - Sales Trading chandrakant@dolatcapital.com Shirish Thakkar VP - Head Domestic Derivatives Sales Trading shirisht@dolatcapital.com Kartik Mehta VP - Head Asia Derivatives Sales Trading kartikm@dolatcapital.com Bhavin Mehta VP - Derivatives Strategist bhavinm@dolatcapital.com Hardik Mehta Sales Trader hardikm@dolatcapital.com Dolat Capital Market Private Limited. Sunshine Tower, 28th Floor, Senapati Bapat Marg, Dadar (West), Mumbai

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