ITC Cigarette volumes soft; FMCG holds fort

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1 RESULT UPDATE ITC Cigarette volumes soft; FMCG holds fort India Equity Research Consumer Goods The 6% YoY dip in ITC s Q2FY18 cigarette volumes came bang in line with our estimate, while 7.2%, 3.6% and 5.6% YoY revenue, EBITDA and PAT growth, respectively, was marginally ahead. To counter the GST rate, the company effected price hikes of ~10-11% YoY. Underlying FMCG sales grew 10% YoY with food and personal care segments performing well on revenue as well as margin fronts; retail, however, remained muted (similar to performance of other retailers). The tax hike effected in GST regime is likely to continue to impact cigarette volumes (as has been the case historically). Maintain HOLD. Cigarette volumes decline; FMCG sustains good run Cigarette volumes declined 6% YoY on a base of 3% growth. This was expected considering the hike in effective tax rate in GST regime. In order to offset higher GST rate, ITC has hiked prices ~10-11% YoY. While volumes were comparatively better for 64mm portfolio (contributes ~38% to overall sales), premium portfolio is facing some stress. Underlying sales of the FMCG segment jumped 10% YoY with profitability improvement driven by enhanced scale, improved realisation and mix enrichment. Rest of the businesses: Soft Hotel s performance was impacted by highway liquor ban and renovation work at ITC Maurya & ITC Maratha properties. Room revenue however grew at a healthy pace on account of increase in ARRs. Agri business remained subdued owing to limited trading opportunities in agri commodities and shortage of leaf tobacco. Profitability was impacted by steep increase in leaf farm prices and adverse crop quality. Paperboards, Paper & Packaging segment registered a robust growth of 18% YoY driven by richer product mix and structural cost saving initiatives. Improvement in profitability was also aided by benign input costs. Outlook and valuations: Uncertainty looms; maintain HOLD With per capita consumption 1/18th China s, the cigarette opportunity in India remains attractive over the long term. However, the high GST rate will pressurise volumes due to resultant price hikes. We maintain HOLD/SP and value ITC on SOTP on FY19E to arrive at target price of INR307. The stock is currently trading at 25.8x FY19E EPS. Financials* (INR mn) Year to March Q2FY18 Q2FY17 % change Q1FY18 % change FY17 FY18E FY19E Total op inc. 103,141 96, , , , ,386 EBITDA 37,615 36, , , , ,583 Adj. profit 26,398 25, , , , ,737 Adj Dil. EPS (INR) Diluted P/E (x) EV/EBITDA (x) ROAE (%) *Quarterly numbers are standalone; Annual numbers are consolidated Edelweiss Research is also available on Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. EDELWEISS 4D RATINGS Absolute Rating Rating Relative to Sector Risk Rating Relative to Sector Sector Relative to Market HOLD MARKET DATA (R: ITC.BO, B: ITC IN) Edelweiss Securities Limited Performer Medium Underweight CMP : INR 269 Target Price : INR week range (INR) : 368 / 222 Share in issue (mn) : 12,180.3 M cap (INR bn/usd mn) : 3,281 / 50,429 Avg. Daily Vol.BSE/NSE( 000) : 12,981.8 SHARE HOLDING PATTERN (%) Current Q1FY18 Q4FY17 Promoters * MF's, FI's & BK s FII's Others * Promoters pledged shares (% of share in issue) PRICE PERFORMANCE (%) Stock Nifty : NIL EW FMCG Index 1 month months (6.7) months Abneesh Roy abneesh.roy@edelweissfin.com Alok Shah alok.shah@edelweissfin.com Rajiv Berlia rajiv.berlia@edelweissfin.com October 27, 2017

2 Consumer Goods Table 1: ITC segmental snapshot (%) Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Revenues growth YoY FMCG-Cigarettes (1.2) NA FMCG-Others Hotels (0.2) Agribusiness (10.6) (28.8) (29.4) (10.4) (7.3) (1.2) 4.7 Paperboards, paper & packaging (4.7) (4.6) (1.8) (2.3) (1.6) - (0.1) (1.7) EBIT growth YoY FMCG-Cigarettes FMCG-Others (7.7) (43.3) (70.6) (204.9) (29.3) (220.1) (728.5) Hotels (53.8) (29.8) (40.0) (42.2) (10.0) 1.5 (116.8) NM Agribusiness (1.4) (3.1) (20.8) (0.9) (13.7) Paperboards, paper & packaging (7.7) 1.1 (7.4) (13.6) (2.7) EBIT margins FMCG-Cigarettes NA FMCG-Others (0.4) (0.5) (0.2) (0.1) (0.8) Hotels (2.5) (1.9) Agribusiness Paperboards, paper & packaging Overall EBIT margins Note: Q4FY17 nos. for Cigarette, FMCG-Others, are not strictly comparable owing to adoption of IND-AS from Q1FY17. Revenue growth and EBIT margin for Cigarette is not comparable for Q1FY18 owing to GST based accounting Source: Company, Edelweiss research Cigarettes: Volumes decline as expected Cigarette business saw volume decline of 6% YoY. Legal cigarette industry volumes continue to remain under severe pressure due to the sharp increase in tax incidence under the GST regime. Pressure on legal cigarette industry escalated significantly on account of steep increase in tax incidence and additional burden on business due to GST transition costs. While the intention of the Government was to correct an apparent anomaly in cigarette taxation under the new tax regime announced earlier on account of the removal of the cascading effect of excise duty which existed in the pre GST regime, the upward revision resulted in significantly higher tax incidence on cigarettes compared to the pre-gst scenario which is not in keeping with the fundamental principle of revenue neutrality. In fact, the combined impact of increase in excise duty announced by the Union Budget 2017 and the revision in GST Compensation Cess resulted in an incremental tax burden of over 20% on ITC. It is pertinent to note that the cumulative growth in tax incidence on cigarettes, after cognising for the latest increase in Cess rates, stands at a staggering 202% since FY12. Further, the cigarette business had to contend with additional costs associated with the transition to GST due to non-availability of additional duty surcharge credit on transition stocks and the unanticipated revision of GST Compensation Cess. It is apprehended that the sharp increase in tax incidence on cigarettes will further increase the huge tax arbitrage. This will severely undermine the legal cigarette industry and adversely impact tobacco farmers and the revenue objective of the Government. According to an independent study conducted by Euromonitor International, India is today the 4 th largest market for illegal cigarettes in the world. It isestimated that almost 68% of the tobacco consumed in the country remains outside the tax net on account of evasion. Legal cigarettes account for only about 11% of total tobacco consumption in the country, they contribute more than 87% of tax revenue from the tobacco sector. Despite the extremely challenging operating 2 Edelweiss Securities Limited

3 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY14 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 (Cigarette volume growth %) ITC environment, ITC has sustained its leadership position in the industry through relentless focus on delivering world-class products, continuous innovation & value addition and bestin-class execution. Chart 1: Cigarette volumes (2.0) (8.0) (14.0) (20.0) FMCG-others Source: Company, Edelweiss research ITC s FMCG others segment revenue grew 10% YoY on a comparable basis despite muted demand environment and disruption due to GST transition. This growth was driven by strong performance of the Branded Packaged Foods and Personal Care businesses. However ongoing restructuring of retail & trade footprint in the Lifestyle Retailing Business partially offset strong performance of packaged foods and personal care segment. The Branded Packaged Foods posted healthy growth in revenue led by atta, snacks and noodles. In Staples, Snacks and Meals Business, Aashirvaad atta continued to perform well consolidating its leadership position across markets. The Bingo! range of snack foods recorded robust growth driven by Yumitos potato chips and Tedhe Medhe. Several innovative products such as Tedhe Medhe Lime & Tomato Masti and Mad Angles Kasundi, tailored to suit regional tastes and preferences were launched during Q2FY18. In the Instant Noodles category, YiPPee! continued to perform well leveraging its superior value proposition anchored on best-in-class product quality, safety and taste. In the Confections Business, Sunfeast biscuits performed well with Dark Fantasy Choco Fills, Sunfeast Marie and Mom s Magic continuing to enhance market standing. During the quarter, company launched Dark Fantasy Creations - a campaign themed around making exquisite desserts with Dark Fantasy in collaboration with ITC Hotels. Product portfolio was augmented with the introduction of innovative products anchored on the health vector in select markets viz. Farmlite Active Protein Power, Farmlite Digestive High Fibre biscuits and Sunfeast A2 Naat Maad Paal biscuits. Portfolio premiumisation continued in the Confectionery category. In the Dairy and Beverages business, B Natural juices continued to register strong growth. The recently launched, first-to-market 100% Not from Concentrate Pomegranate juice 3 Edelweiss Securities Limited

4 Consumer Goods continued to garner impressive consumer franchise in the health and wellness segment. In Dairy, Aashirvaad Svasti ghee was extended to the Delhi & NCR markets during the quarter. The Personal care business continues to focus on product mix enrichment. The Engage On range of pocket perfumes recorded robust growth on the back of its unique value proposition. The Fiama shower gel range and Vivel Lotus Oil soap continued to garner impressive traction. During the quarter, company also launched moisturising skin cream under the recently acquired Charmis brand. Company made steady progress during the quarter towards setting up state-of-the-art owned integrated consumer goods manufacturing facilities at Panchla (West Bengal) and Kapurthala (Punjab). These facilities are expected to commence operations in phases, beginning Q3FY18. Paper Paperboards, Paper & Packaging segment registered a robust growth of 18% YoY driven by richer product mix and structural cost saving initiatives. Improvement in profitability was also aided by benign input costs. Growth in Segment Revenue, however, remained muted on account of subdued demand environment prevailing in the FMCG and legal Cigarette industry. Capacity utilisation of India s first Bleached Chemical Thermo Mechanical Pulp mill (BCTMP), recently commissioned was ramped up progressively thereby reducing dependence on pulp import. pulp. Capacity expansion projects in the value added Paperboard and Décor segments are also making satisfactory progress. Agri The performance of Agri Business segment was impacted by shortage of leaf tobacco AP due to lower crop output on account of drought in 2016 & adverse crop quality, relative strength of INR vis-à-vis currencies of competing origins and limited trading opportunities in other agri-commodities. Hotel During the quarter, room revenue grew at a healthy pace on account of increase in ARRs. However, Food & Beverage revenue growth was impacted by highway liquor ban which prevailed for a significant part of the quarter. While segment results improved sequentially, it remained muted due to the challenging business context and gestation costs of the recently commissioned ITC Grand Bharat, Gurgaon. Renovation work at ITC Maurya and ITC Maratha also weighed on overall performance. 4 Edelweiss Securities Limited

5 ITC Table 2: Segmental Performance Year to March - Net Revenues (INR mn) Q2FY18 Q2FY17 % growth YoY Q1FY18 % growth QoQ FMCG-Cigarettes 45,542 85,285 NA 87,742 NA FMCG-Others 28,041 26, , Hotels 3,002 2, ,049 (1.5) Agribusiness 19,680 18, ,605 (28.7) Paperboards, paper & packaging 13,094 13,314 (1.7) 13,598 (3.7) Less: Inter-segment revenue 12,597 12, ,781 (39.4) Net income (Excl other income) 96, ,914 (28.3) 137,222 (29.5) EBIT (INR mn) FMCG-Cigarettes 32,917 32, , FMCG-Others 205 (33) (728.5) 54 NM Hotels (20.2) Agribusiness 2,562 2,970 (13.7) 2, Paperboards, paper & packaging 2,742 2, , Profit before tax (Excl other income) 38,468 37, , Year to March - Margin Q2FY18 Q2FY17 bps exp y-o-y Q1FY18 bps exp q-o-q FMCG-Cigarettes NA 37.3 NA FMCG-Others 0.7 (0.1) Hotels (33) Agribusiness (278) Paperboards, paper & packaging Margin , ,223 Source: Company, Edelweiss research YoY and QoQ numbers not comparable owing to GST based accounting in Q2FY18 which was not in the base quarter. Outlook: Uncertainty looms; maintain HOLD The government s move to increase overall taxation under the new GST rate has come as a surprise against benefit envisaged under previous GST rates declared by the government. This, along with the ~6% hike in budget, has resulted in overall tax burden of ~20% for the company ITC s cigarette volumes had come under tremendous pressure during FY13-16 when the government had increased excise duty on cigarette by ~18% on an average (volumes were down 20%). Government s statement that it is not right that demerit goods should benefit due to decrease in taxation indicates government s tough stance on the sin sector. Also, with cigarette under GST, it remains a key source for the government to address any deficit it may have due to GST implementation and hence uncertainly looms in terms of taxation. However, ITC has recently increased prices across cigarette segments which are lower than what we initially anticipated price increase in 84mm cigarette is ~7.1%, in 69mm it is ~6.7%, while in 74mm it is 4.4%. Price increase in 64mm is varied with ~20% hike in some brands (example Bristol). This highlights that ITC has been cautious in hiking prices across segments, keeping in mind the impact on volumes. We remain positive on ITC over the long 5 Edelweiss Securities Limited

6 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 (INR) Consumer Goods term as per capita consumption of cigarettes in India is 1/18 th of China, while the proportion of legal cigarettes in overall tobacco consumption remains low at 11%. We maintain HOLD/ Sector Performer and value ITC on SOTP basis on FY19E to arrive at a target price of INR307. Table 3: SOTP valuation Target Per share FY19E Methodology multiple contribution Cigs EPS 8.6 P/E 27x 232 FMCG Sales/Share 9.6 P/S 4x 39 Hotels EBITDA/Share 0.3 EV/EBITDA 15x 5 Agri EBITDA/Share 1.0 EV/EBITDA 10x 10 Paper EBITDA/Share 1.1 EV/EBITDA 10x 11 Net cash 11 Value of share 307 Chart 2: 1 year forward price to earning 500 Source: Edelweiss research x 30x 25x 20x 15x 0 Source: Bloomberg, Edelweiss research 6 Edelweiss Securities Limited

7 ITC Financial snapshot (INR mn) Year to March Q2FY18 Q2FY17 % change Q1FY18 % change YTD18 FY18E FY19E Net revenues 102,264 95, , , , ,648 Other operating income 877 1,252 (30.0) ,659 3,599 3,738 Total operating Income 103,141 96, , , , ,386 Raw material costs 43,564 36, , , , ,663 Staff costs 6,065 6, ,746 (10.1) 12,812 35,635 40,069 Other expenses 15,897 17,590 (9.6) 16,976 (6.4) 32,873 74,790 83,070 Total expenditure 21,963 23,593 (6.9) 23,723 (7.4) 45, , ,139 EBITDA 37,615 36, , , , ,583 Depreciation 2,824 2, , ,506 11,079 11,538 EBIT 34,791 33, , , , ,046 Other income 4,942 4, , ,710 20,394 21,182 Interest Add: Prior period items Add: Exceptional items Profit before tax 39,443 38, , , , ,921 Provision for taxes 13,045 13,262 (1.6) 13,841 (5.8) 26,885 57,618 65,253 Minority interest (62) (69) Associate profit share Reported net profit 26,398 25, , , , ,737 Adjusted Profit 26,398 25, , , , ,737 Diluted shares (mn) 12,152 12,112 12,152 12,152 12,147 12,147 Adjusted Diluted EPS As % of net revenues COGS Employee cost Other expenditure EBITDA EBIT PBT Adjusted net profit Tax rate Edelweiss Securities Limited

8 Consumer Goods Company Description ITC is one of the largest consumer companies in India with businesses spanning cigarettes, hotels, paper and agri-commodities. Its branded foods division with products such as staples, confectionery, noodle, snacks and biscuits is doing well and gaining strong market share across many categories. ITC has been successful in foods and constantly expanding its personal product portfolio (soaps, shampoos, deo, talc). Though the cigarettes division is still the major source of revenue, other businesses (agri, paper, hotel) have grown over the years. Recently ITC has entered the nicotine gum space with the launch of Kwiknic. Investment Theme ITC has sustained its market leadership in the cigarettes space and delivered robust performance (both topline and profitability) amidst heavy taxation burden (three consecutive years of steep excise hike on cigarettes in Union Budget) and regulations with constant focus on innovation and distribution. The e-choupal network established by ITC gives it a phenomenal sourcing edge, which has helped it transform into a consumer giant. ITC s FMCG business is likely to remain profitable in FY15 (turned profitable in FY14 with overall profit of INR220mn). Paper business helps address packaging needs of FMCG business with consistent quality and comparatively lower costs. Agri business has seen robust performance aided by tobacco leaf and traded commodities exports; provides strategic sourcing support to the company s cigarette and branded packaged foods businesses by ensuring high quality supplies. We expect ITC s cigarette EBIT growth to remain resilient and FMCG s profitability surge to sustain. With a new business-friendly government at the Centre, we expect hotel, paper and FMCG growth rates to improve over ensuing years. Key Risks High incidence of taxation and strict regulatory norms on cigarette usage in public and packaging poses threat to cigarette volume growth. Growing contraband market of cigarettes also poses significant threat for the cigarettes business. Slowdown in macro-economic environment is a major threat to hotels business. SUUTI stake sale is a likely overhang on the stock. 8 Edelweiss Securities Limited

9 ITC Financial Statements Key Assumptions Macro GDP(Y-o-Y %) Inflation (Avg) Repo rate (exit rate) USD/INR (Avg) Company Revenue growth (Y-o-Y %) Cigs-Volume growth (dom) (8.5) 1.5 (4.0) (2.0) Cigs-Price change (dom) FMCG sales growth (dom) Hotel sales growth (dom) Agri sales growth (dom) (22.6) Paper sales growth (dom) 5.9 (0.7) Overall growth (%) Cig margin (dom) FMCG margin (dom) Hotel margin (dom) Agri margin (dom) Paper margin (dom) EBITDA margin assumpn COGS as % of sales A&P as % of sales Employee cost (% of rev) Financial assumptions Tax rate (%) Capex (INR mn) 10,529 19,337 16,701 25,000 Debtor days Inventory days Payable days Cash conversion cycle Dep. (% gross block) Dividend payout Yield on cash Income statement (INR mn) Gross revenues 546, , , ,719 Excise duties 158, , , ,072 Net revenue 388, , , ,648 Other Operating Income 3,879 4,436 3,599 3,738 Total operating income 391, , , ,386 Materials costs 135, , , ,663 Gross profit 256, , , ,722 Manufacturing expenses 68,369 68,761 65,991 72,320 Employee costs 34,410 36,317 35,635 40,069 Ad. & sales costs 8,949 8,107 8,799 10,750 EBITDA 144, , , ,583 Depreciation 10,774 11,528 11,079 11,538 EBIT 133, , , ,046 Add: Other income 15, , , , Less: Interest Expense Profit Before Tax 148, , , ,921 Less: Provision for Tax 53,582 55,491 57,618 65,253 Less: Minority Interest (84) (60) (62) (69) Reported Profit 95, , , ,737 Adjusted Profit 95, , , ,737 Shares o /s (mn) 12,040 12,147 12,147 12,147 Adjusted Basic EPS Diluted shares o/s (mn) 12,108 12,179 12,147 12,147 Adjusted Diluted EPS Adjusted Cash EPS Dividend per share (DPS) Dividend Payout Ratio(%) Common size metrics Materials costs Staff costs Ad. & sales costs Other expenses EBITDA margins EBIT margins Net Profit margins Growth ratios (%) Revenues EBITDA PBT Adjusted Profit (1.7) EPS (1.9) Edelweiss Securities Limited

10 Consumer Goods Balance sheet (INR mn) As on 31st March FY16 FY17 FY18E FY19E Share capital 8,047 12,147 12,147 12,147 Reserves & Surplus 418, , , ,508 Shareholders' funds 426, , , ,655 Minority Interest 2,609 2,947 2,885 2,817 Short term borrowings Long term borrowings Total Borrowings Long Term Liabilities 1,863 2,174 2,174 2,174 Def. Tax Liability (net) 18,395 18,338 18,338 18,338 Sources of funds 450, , , ,241 Gross Block 160, , , ,376 Net Block 144, , , ,170 Capital work in progress 25,597 37,299 24,000 24,000 Intangible Assets 6,473 6,312 6,312 6,312 Total Fixed Assets 176, , , ,482 Non current investments 51,258 66,940 66,940 66,940 Cash and Equivalents 126, , , ,468 Inventories 91,294 87, , ,624 Sundry Debtors 19,172 24,743 21,696 24,098 Loans & Advances Other Current Assets 51,065 50,504 50,504 50,504 Current Assets (ex cash) 161, , , ,379 Trade payable 23,393 26,593 28,349 30,684 Other Current Liab 42,621 44,344 44,344 44,344 Total Current Liab 66,013 70,937 72,693 75,028 Net Curr Assets-ex cash 95,728 91, , ,351 Uses of funds 450, , , ,241 BVPS (INR) Free cash flow (INR mn) Reported Profit 95, , , ,737 Add: Depreciation 10,774 11,528 11,079 11,538 Interest (Net of Tax) Others (5,365) (10,630) Less: Changes in WC 2,770 (444) 16,458 9,018 Operating cash flow 97, , , ,496 Less: Capex 11,813 19,337 16,701 25,000 Free Cash Flow 86,178 86,937 90, ,496 Cash flow metrics Operating cash flow 97, , , ,494 Investing cash flow (39,208) (32,509) (16,866) (25,000) Financing cash flow (56,125) (73,010) (73,349) (82,786) Net cash Flow 2, ,762 21,708 Capex (11,813) (19,337) (16,701) (25,000) Dividend paid (51,327) (69,941) (72,740) (82,379) Profitability and efficiency ratios ROAE (%) ROACE (%) Inventory Days Debtors Days Payable Days Cash Conversion Cycle Current Ratio Adjusted Debt/Equity Interest Coverage Ratio Operating ratios Total Asset Turnover Fixed Asset Turnover Equity Turnover Valuation parameters Adj. Diluted EPS (INR) Y-o-Y growth (%) (1.9) Adjusted Cash EPS (INR) Diluted P/E (x) P/B (x) EV / Sales (x) EV / EBITDA (x) Dividend Yield (%) Peer comparison valuation Market cap Diluted P/E (X) EV / EBITDA (X) ROAE (%) Name (USD mn) FY18E FY19E FY18E FY19E FY18E FY19E ITC 50, Colgate 4, Dabur 8, Emami 4, Hindustan Unilever 41, Nestle Ltd 10, Source: Edelweiss research 10 Edelweiss Securities Limited

11 Additional Data Directors Data Yogesh Chander Deveshwar Chairman Nakul Anand Executive Director Sanjiv Puri CEO and Executive Director R Tandon Executive Director Zafir Alam Non-Executive Director Sunil Behari Mathur Non-Executive Director Pillappakkam Bahukutumbi Ramanujam Non-Executive Director Sahibzada Syed Habib-ur-Rehman Non-Executive Director Meera Shankar Non-Executive Director Suryakant Balkrishna Mainak Non-Executive Director S Banerjee Non-Executive Director Nirupama Rao Non-Executive Director A Duggal Non-Executive Director ITC Auditors - Deloitte Haskins & Sells, Kolkata *as per last annual report Holding Top10 Perc. Holding Perc. Holding Tobacco manufacturer Life insurance corp Unit trust of india 9.05 Myddleton invest coy 3.99 General insurance co 1.75 New india assurance 1.66 Standard life aberde 1.51 Oriental insurance c 1.33 Gic private limited 1.31 Rothmans intl enterp 1.27 *in last one year Bulk Deals Data Acquired / Seller B/S Qty Traded Price 07 Feb 2017 Lic A/C Lic Allocation Contra Fund Buy Feb 2017 Administrator Of The Specified Undertaking Of The Uti-1964 Sell Feb 2017 Administrator Of The Specified Undertaking Of The Unit Trus Sell Feb 2017 Uti Admnstr Of The Specified Undertaking Of Uti-Unit Schm 64 Sell Feb 2017 Life Insurance Corporation (Scheme 5) Buy Feb 2017 Life Insurance Corporation Of India Ltd Buy *in last one year Insider Trades Reporting Data Acquired / Seller B/S Qty Traded 19 May 2017 Rajeev Pathak Sell May 2017 D. M. Hazarika Sell May 2017 G. Vijaya Kumar Sell May 2017 Barun Kar Sell May 2017 A. Madhusudhana Rao Sell *in last one year 11 Edelweiss Securities Limited

12 RATING & INTERPRETATION Company Absolute reco Relative reco Relative risk Company Absolute reco Relative reco Relative Risk Asian Paints BUY SO M Bajaj Corp HOLD SU H Berger Paints BUY SO L Britannia Industries BUY SO L Colgate HOLD SP M Dabur BUY SO M Emami BUY SO H GlaxoSmithKline Consumer HOLD SU M Healthcare Godrej Consumer BUY SO H Hindustan Unilever HOLD SP L ITC HOLD SP M Marico BUY SO M Nestle Ltd HOLD SP L Pidilite Industries BUY SO M United Spirits HOLD SP H ABSOLUTE RATING Ratings Expected absolute returns over 12 months Buy More than 15% Hold Between 15% and - 5% Reduce Less than -5% RELATIVE RETURNS RATING Ratings Sector Outperformer (SO) Sector Performer (SP) Criteria Stock return > 1.25 x Sector return Stock return > 0.75 x Sector return Stock return < 1.25 x Sector return Sector Underperformer (SU) Stock return < 0.75 x Sector return Sector return is market cap weighted average return for the coverage universe within the sector RELATIVE RISK RATING Ratings Low (L) Medium (M) High (H) Criteria Bottom 1/3rd percentile in the sector Middle 1/3rd percentile in the sector Top 1/3rd percentile in the sector Risk ratings are based on Edelweiss risk model SECTOR RATING Ratings Overweight (OW) Equalweight (EW) Criteria Sector return > 1.25 x Nifty return Sector return > 0.75 x Nifty return Sector return < 1.25 x Nifty return Underweight (UW) Sector return < 0.75 x Nifty return 12 Edelweiss Securities Limited

13 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 (INR) ITC Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai Board: (91-22) , Aditya Narain Head of Research Coverage group(s) of stocks by primary analyst(s): Consumer Goods Asian Paints, Bajaj Corp, Berger Paints, Britannia Industries, Colgate, Dabur, Godrej Consumer, Emami, Hindustan Unilever, ITC, Marico, Nestle Ltd, Pidilite Industries, GlaxoSmithKline Consumer Healthcare, United Spirits Recent Research Date Company Title Price (INR) Recos 27-Oct-17 United Spirits Uncertainties behind; brighter prospects ahead; Result Update 26-Oct-17 Emami Volumes recover; outlook promising; Result Update 25-Oct-17 Hindustan Unilever Volumes recover; sustained cost cuts boost margins; Result Update 3,026 Buy 1,171 Buy 1,272 Hold Distribution of Ratings / Market Cap Edelweiss Research Coverage Universe Buy Hold Reduce Total Rating Interpretation Rating Expected to Rating Distribution* * 1stocks under review > 50bn Between 10bn and 50 bn < 10bn Market Cap (INR) Buy Hold Reduce appreciate more than 15% over a 12-month period appreciate up to 15% over a 12-month period depreciate more than 5% over a 12-month period One year price chart ITC 13 Edelweiss Securities Limited

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