Result Update Rating matrix Rating : Buy Target : 33 Target Period : 12 months Potential Upside : 15% What s changed? Target Changed from 32 to 33 EPS FY19E Changed from 9.9 to 1.2 EPS FY2E Changed from 1.8 to 11.2 Rating Unchanged Quarterly performance crore Q4FY18 Q4FY17 YoY (%) Q3FY18 QoQ (%) Sales 1479.2 1999.5-4.7 9672.6 8.3 EBITDA 4144. 3875.4 6.9 3889.1 6.6 EBITDA (%) 39.1 25.8 1332 bps 45.1-592 bps PAT 2932.7 2669.5 9.9 39.2-5.1 Key financials Crore FY17 FY18E FY19E FY2E Revenue 39,641.9 4,254.7 44,155.4 48,29.3 EBITDA 14,578. 15,541. 17,584.7 19,483.6 Net Profit 1,2.9 11,223.3 12,339.5 13,662. EPS ( ) 8.4 9.2 1.2 11.2 Valuation summary FY17 FY18E FY19E FY2E P/E 34.1 31. 28.2 25.4 Target P/E 39.3 35.7 32.5 29.3 Div. Yield 1.7 2.6 2.8 3.1 Mcap/Sales 8.8 8.6 7.9 7.2 RoNW (%) 22.5 21.3 24. 25.7 RoCE (%) 32.9 3.9 34.6 37.1 Stock data Particular Amount Market Capitalization ( Crore) 347,415.6 Total Debt (FY18) ( Crore) 11.1 Cash and Investments (FY18) ( Crore) 12,498.3 EV ( Crore) 334,928.4 52 week H/L 353 / 25 Equity capital 122.4 crore Face value 1 Price performance 1M 3M 6M 12M ITC 8.1 7.4 12.1.9 HUL 1.9 16.4 23.3 57.7 Nestle India 1.2 27. 25.8 48.8 VST Industries -1.5-7. -9.6 2. Research Analyst Sanjay Manyal sanjay.manyal@icicisecurities.com Kapil Jagasia, CFA kapil.jagasia@icicisecurities.com May 17, 218 ITC Ltd (ITC) 285 GST woes recede; volume growth to recover ITC posted decline in net revenue (net of excise duty for base quarter and in current quarter) by 4.8% YoY to 1,586.7 crore. Cigarette segment revenue numbers are not comparable. However, FMCG & hotels business saw growth of 5.8% & 5.6%, respectively. Agri business & paperboard segment saw de-growth of 5.7% and 5.2%, respectively. Cigarette volume declined ~2% after the steep price hike taken by company to pass on the GST increase in July 217 Operating profit grew by 6.9% to 4,144 crore against our estimate of 4,52 crore. Segment wise, cigarettes, hotels, paperboard, FMCG segment EBIT grew 7.6%, 12.8%,.9% and 64.2% (on a low base), respectively. Agri segment EBIT declined 8.6% On the back of higher operating profit, net profit grew 9.9% YoY to 2,932.7 crore (I-direct estimate: 3,6.2 crore) Cigarette volume set to recover on the back of low base Cigarette volumes declined ~2% during the quarter as the company has taken price hikes after a steep increase in GST in July 217. With fears on a further increase in taxation on cigarettes receding, we estimate a 3% rise in cigarette volumes (on a low base) for FY19E & FY2E along with a 6% price increase in cigarettes segment for both FY19E & FY2E. Additionally, the company continues to maintain a favourable product mix of 64 mm cigarettes (lower price point cigarette) at 35%. FMCG segment revenue grew 11.3% YoY (on a comparable corresponding numbers), largely led by volume growth & favourable product mix. Growth was strong despite a short-term impact on Aashirvaad atta sales due to circulation of malicious videos and false allegations that it contains plastic. Profitability of FMCG, hotels and paperboard business witnessed a significant improvement. EBIT for FMCG segment increased 64% to 91.2 crore in Q4FY17 on the back of a favourable product mix (foods business is a high margin one). Hotel business EBIT increased 12.9% to 75.5 crore on the back of higher room rates & increasing contribution of F&B. Continued investment & foray in new categories to drive packaged foods Though the FMCG segment reported sluggish revenue growth at 7.8% to 11,328.6 crore in FY18, we remain upbeat on the growth of the foods business as we believe ITC would be the key beneficiary of a) demand revival, b) shift in consumption pattern (from unorganised to organised) and c) supply chain benefits post GST implementation. Moreover, the company has successfully built the FMCG brands that have recorded strong sales growth over a short span of time, e.g. Aashirvaad (~ 35 crore), Sunfeast (~ 3 crore), Bingo (more than 1 crore). Additionally, entry into new segments like dairy (with Aashirvaad Svasti ghee), premium chocolates (Flabelle), juices (B Naturals) and Coffee (Sunbean) bode well for the company s long term revenue target of 1 lakh crore by FY3. Thus, we remain positive on the FMCG business and model revenue CAGR of 13.8% in FY18-2E. Attractively placed in terms of valuation; reiterate BUY Though cigarette volume growth has been subdued in the last three to four years due to high tax incidence in the GST regime, we believe cigarette volumes may surprise positively on a low base in the near term. The stock is attractively placed at the current valuation. We continue to maintain our BUY rating on the stock price with a target price of 33. ICICI Securities Ltd Retail Equity Research
Variance analysis Q4FY18 Q4FY18E Q4FY17 YoY (%) Q3FY18 QoQ (%) Comments Net Sales 1,479.2 11,521.2 1,999.5-4.7 9,672.6 8.3 Net sales declined 4.8%. However, FMCG and hotels segments grew 5.8% Operating Income 17.5 92. 126.1-14.7 99.5 8.1 and 5.6%, respectively. Cigarettes volume declined ~2% Raw Material Expenses 4,1.2 4,612.3 4,682.8-14.6 3,596.5 11.3 Employee Expenses 611.3 634.1 571.4 7. 595. 2.7 Other operating Expenses 1,83.3 1,846.6 1,996. -8.3 1,691.5 8.2 EBITDA 4,144. 4,52.2 3,875.4 6.9 3,889.1 6.6 Operating profit increased 6.9% led by cigarette price hikes after an excessive increase in GST in July 217 EBITDA Margin (%) 39.1 39.2 25.8 1332 bps 45.1-592 bps Depreciation 34. 355.5 241.8 25.7 29.8 4.6 Interest 23.2 23.5-11.5-32.8 24. -3.2 Other Income 516.5 277.1 42.1 28.5 642.4-19.6 PBT 4,333.3 4,418.3 4,47.1 7.1 4,629.6-6.4 Tax Outgo 1,4.6 1,412. 1,377.7 1.7 1,539.4-9. PAT 2,932.7 3,6.2 2,669.5 9.9 3,9.2-5.1 On the back of higher operating profit and other income, net profit grew 9.9% YoY Key Metrics YoY growth (%) Cigarette Growth (%) N.A. 4.8 1.6 Cigarette numbers are not comparable FMCG (Others) Growth (%) 5.8 6.5 11.8 FMCG segment reported 5.8% growth. However, on a comparable basis, the segment grew 11.3% Hotels Growth (%) 5.6 6.5 9.2 Hotels business witnessed an increase in room rates and higher F&B revenues during the quarter Agri Business Growth (%) -5.7 6.2-8.4 Agri growth was impacted by shortage & poor quality of AP leaf crop Paperboards Growth (%) -5.2 4.4-4.2 Change in estimates FY19E FY2E ( Crore) Old New % Change Old New % Change Comments Sales 44534.9 44155.4 -.9 48,688.1 4829.3 -.8 Minor change in estimates EBITDA 1698. 17584.7 4. 18598.1 19483.6 4.8 EBITDA Margin (%) 38. 39.5 149 bps 38.2 39.9 174 bps PAT 11987.4 12339.5 2.9 13155.3 13662. 3.9 EPS ( ) 9.9 1.2 2.6 1.9 11.3 3.8 Assumptions Current Earlier FY17E FY18E FY19E FY2E FY19E FY2E Cigarettes ( cr) 34,2. 22,894. 39,477. 43,11. 39,44.9 43,22.1 Cigarette Vol. Growth (%) 2. -4. 3. 3. 1. 1. Volume growth set to recover on low base Cigarette Price Growth (%) 3. 12. 6. 6. 8. 8. FMCG - Others ( cr) 1,511.8 11,328.6 13,18.6 14,681.5 13,247.8 14,94.7 Hotels ( cr) 1,341.7 1,417.5 1,537.5 1,593.6 1,537.5 1,593.6 Agri Business ( cr) 8,264.6 8,67.7 9,59.8 1,366.6 9,59.8 1,366.6 Paperboards ( cr) 5,362.9 5,249.6 5,777.8 6,157.2 6,27.1 6,424.2 ICICI Securities Ltd Retail Equity Research Page 2
Segmental Analysis Exhibit 1: Cigarette volume growth set to recover Exhibit 2: Cigarette EBIT growth trend 8 6 4 2-2 -4-6 -8-1 -12 FY14 FY15 FY16 FY17 FY18 Volume growth (%) FY19 FY2 14 12 1 8 6 4 2 2.3 11.8 1. 5. 6.5 2.6-3. FY14 FY15 FY16 FY17 FY18 FY19 FY2 25 2 15 1 5-5 Cigarette EBIT ( crore) Cigarette EBIT Growth (%) Exhibit 3: FMCG revenues ( crore) and growth (%) Exhibit 4: FMCG EBIT ( crore) 15 13 11 9 7 15.8 11.3 7.7 8. 7.8 14.9 12.8 2 15 1 5 3 25 2 15 1 5 21.8 34.1 11.8 28.1 156.2 231.1 257. 5 FY14 FY15 FY16 FY17 FY18E FY19E FY2E FY14 FY15 FY16 FY17 FY18E FY19E FY2E Revenues ( crore) Revenue Growth (%) EBIT ( crore) Exhibit 5: Hotel revenues ( crore) and growth (%) Exhibit 6: Paperboards revenues ( crore) and growth (%) 17 14 11 8 FY14 5.4 4.8 FY15 FY16 8.4 4.3 FY17 5.6 FY18E FY19E 8.5 FY2E 3.6 15 12 9 6 3-3 -6-9 -12 65 6 55 5 45 4 14.7 1.1 6.6 2.2.9.7-2.1 FY14 FY15 FY16 FY17E FY18E FY19E FY2E 25 2 15 1 5-5 Revenues ( crore) Revenue Growth (%) Revenues ( crore) Revenue Growth (%) ICICI Securities Ltd Retail Equity Research Page 3
Outlook & valuation Given the steep GST rate increase in July 217, cigarette volumes declined ~4% in FY18. However, we expect no further increase (or minimal changes) in GST on cigarettes by FY2E. This would curb the decline in cigarettes volume in FY19E and FY2E. We factor in 3% volume growth for both FY19E and FY2E. Further, in order to pass on the existing tax burden, we estimate cigarette realisation growth of 6% each in FY19E and FY2E. Additionally, ITC s focus on growing its FMCG business (estimated to grow at a 13.8% CAGR in FY18-2E) by entering newer segments and tapping opportunity in foods segment would be a catalyst for topline growth in the long run. Taking into consideration the accounting changes under GST, we are thus estimating a net revenue and PAT CAGR of 9.6% and 1.3%, respectively, in FY18-2E with EBITDA margin of 39.9% in FY2E. We value the cigarettes business at 232 (PE multiple of 25x FY2E EPS), FMCG at 6 (5x MCap/sales FY2E), paperboards at 1 (6x FY2E EV/EBITDA), agri-business at 6 (3x P/BV FY2) and hotels at 11 (2x EV/room FY2E). We also add the cash per share of 1. We believe cigarette volume growth should grow on a low base, going forward. However, revenue growth and profitability of the FMCG business would be the key driven catalyst for growth over the long term. We maintain our BUY rating on the stock with a target price of 33 per share. Exhibit 7: Sum of the parts valuation 35 3 25 2 15 1 5 232 6 1 6 11 1 Cigarettes FMCG Paper Agri Hotels Cash per share 33 SOTP Exhibit 8: Valuations Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE ( cr) (%) ( ) (%) (x) (x) (%) (%) FY17 39641.9 9.4 8.4 9.4 34.1 23.6 22.5 32.9 FY18E 4254.7 1.5 9.2 1. 31. 22.2 21.3 3.9 FY19E 44155.4 9.7 1.2 9.9 28.2 19.6 24. 34.6 FY2E 4829.3 9.4 11.2 1.7 25.4 17.8 25.7 37.1 ICICI Securities Ltd Retail Equity Research Page 4
Recommendation history vs. Consensus 43 36 ( ) 29 22 15 May-15 Jul-15 Sep-15 Dec-15 Feb-16 May-16 Jul-16 Oct-16 Dec-16 Feb-17 May-17 Jul-17 Oct-17 Dec-17 Feb-18 1. 9. 8. 7. 6. 5. 4. 3. 2. 1.. May-18 (%) Price Idirect target Consensus Target Mean % Consensus with BUY Source: Bloomberg, Company, ICICI Direct Research Key events Date Dec-1 Feb-11 Feb-12 Sep-12 Dec-12 Event ITC shuts all its five cigarette manufacturing units awaiting clarity from the government on the pictorial representation of packs The GoI leaves excise duty unchanged in its FY12 Budget; a key positive for the company GoI increases basic excise duty on cigarettes by whopping 2% in its FY13 Budget Inaugurates its largest luxury hotel, Grand Chola, in Chennai. It has a capacity of ~6 rooms Begins the construction of milk processing unit in Munger, Bihar Feb-13 The GoI in its Budget again raises the basic excise duty on cigarettes by 18% May-13 Jul-14 Oct-14 Dec-14 Feb-15 For the first time during the quarter the company reports a profit in its FMCG (others) business GoI increases excise duty on cigarettes for a third consecutive year. It announces an increase of 11-72% in excise duty in its FY15E Budget Health Ministry proposes ban on loose cigarettes, higher penalty on smoking in public places Volume declines significantly in Q3FY15 as excessive price hike in last two years impacts growth Acquisition of Shower To Shower, Savlon brands from Johnson & Johnson Feb-15 Excise hike of 25% in below 65 mm category & 15% in above 65 mm category in Budget 215 Feb-16 Excise hike of 1% on cigarettes in Budget 216 Feb-17 Excise hike of 6% on cigarettes in Budget 217 Jul-17 Ad valorem VAT replaced by GST rate of 28%. Excise duty replaced by GST compensation cess of 5% plus specific duty as per cigarette size Jul-17 GST Council raises specific cess on cigarettes in all categories below 75 mm and sharply increases ad-valorem rate in above 75 mm category to 36% Top 1 Shareholders Rank Name Latest Filing Date % O/S Position (m) Change (m) 1 British American Tobacco PLC 31-Mar-18 24.4 2,978.3. 2 Life Insurance Corporation of India 31-Mar-18 16.18 1,975.1. 3 UTI Asset Management Co. Ltd. 31-Mar-18 8.4 1,25.3. 4 Myddleton Investments Co., Ltd. 31-Mar-18 3.98 486.3. 5 General Insurance Corporation of India 31-Mar-18 1.73 21.9-2. 6 The New India Assurance Co. Ltd. 31-Mar-18 1.6 195.3-3.1 7 ICICI Prudential Asset Management Co. Ltd. 31-Mar-18 1.37 167.7 5.2 8 GIC Private Limited 31-Mar-18 1.37 167.1 7.3 9 SBI Funds Management Pvt. Ltd. 3-Apr-18 1.33 162.3 2.4 1 Rothmans International Enterprises, Ltd. 31-Mar-18 1.27 155.. b Source: Reuters, ICICI Direct Research Shareholding Pattern (in %) Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Promoter - - - - - FII 2.8 2.8 19.9 18.6 18. DII 35.7 35.7 36.4 36.7 37.1 Others 43.5 43.5 43.8 44.7 44.9 Recent Activity Buys Sells Investor name Value Shares Investor name Value Shares GIC Private Limited 28.82m 7.35m Vontobel Asset Management, Inc. -171.17m -43.65m HDFC Asset Management Co., Ltd. 24.3m 6.2m National Insurance Company Limited -99.73m -24.18m Matthews International Capital Management, L.L.C. 24.13m 5.85m JM Financial Asset Management Pvt. Ltd. -4.62m -1.36m ICICI Prudential Asset Management Co. Ltd. 2.22m 5.16m Oriental Insurance Company Ltd. -29.77m -7.59m T. Rowe Price Hong Kong Limited 12.17m 3.1m Aberdeen Asset Management (Asia) Ltd. -15.98m -4.7m Source: Reuters, ICICI Direct Research ICICI Securities Ltd Retail Equity Research Page 5
Financial summary Profit and loss statement Crore FY17 FY18E FY19E FY2E Total operating Income 4,88.7 4,627.5 44,573.6 48,779.5 Growth (%) 1.7 1.3 9.7 9.4 Raw Material Expenses 15,976.3 15,79. 17,672.1 19,78.4 Employee Expenses 2,444.3 2,487.5 2,737.6 3,2.3 Marketing Expenses 792.4. 662.3 726.4 Administrative Expenses 4,648.1. 1,51.3 1,646.4 Excise Duty 15359.8 372.2.. Other expenses 1,649.5 6,89.1 4,415.5 4,842.4 Total Operating Expenditure 25,51.6 25,86.6 26,988.8 29,296. EBITDA 14,578. 15,541. 17,584.7 19,483.6 Growth (%) 6.3 6.6 13.2 1.8 Depreciation 1,38. 1,145.4 1,451.7 1,546.2 Interest 23. 86.7 42.7 46.7 Other Income 1,985.9 2,129.8 2,326.8 2,566.3 PBT 15,53. 16,851.7 18,417.2 2,457. Total Tax 5,32.1 5,628.5 6,77.7 6,795. PAT 1,2.9 11,223.3 12,339.5 13,662. Growth (%) 9.4 1. 9.9 1.7 EPS ( ) 8.4 9.2 1.2 11.2 Cash flow statement Crore (Year-end March) FY17E FY18E FY19E FY2E Profit After Tax 1,29. 11,223.3 12,339.5 13,662. Add: Depreciation 1,38. 1,145.4 1,451.7 1,546.2 (Inc)/dec in Current Assets -23.2-118. -1,8.6-2,152.8 Inc/(dec) in CL and Provisions 266.3 2,26.5-1,39.6 76.7 CF from operating activities 1,2. 14,277.2 11,4.9 13,762.1 (Inc)/dec in Investments. -5,8.3 4,42.7-849.6 (Inc)/dec in LT loans & advances. -1.6-5. -5. (Inc)/dec in Fixed Assets -2,897.1-3,319.7-3,861. -2,12. Others. 96... CF from investing activities -2,78.3-9,249.1 59.8-3,19.6 Issue/(Buy back) of Equity 41. 5.7.. Inc/(dec) in loan funds -12.9-6.9 1. 1. Dividend paid & dividend tax -8,173.6-6,895.2-1,695. -11,764.5 Others. -9.5 26.2 15.9 CF from financing activities -7,137.6-6,95.8-1,658.9-11,738.7 Net Cash flow 84.1-1,877.7 1,251.8-996.2 Opening Cash 72.1 156.2-1,721.5-469.7 Cash with Bank 2,591.1 2,591.1 2,591.1 2,591.1 Closing Cash 2,747.3 869.5 2,121.4 1,125.2 Balance sheet Crore (Year-end March) FY17 FY18E FY19E FY2E Liabilities Equity Capital 1,214.7 1,22.4 1,22.4 1,22.4 Reserve and Surplus 44,126.2 5,179.6 5,98.8 51,996.2 Total Shareholders funds 45,341. 51,4.1 51,319.2 53,216.6 LT Borrowings & Provisions 18. 11.1 21.1 31.1 Deferred Tax Liability 1,871.7 1,917.9 1,917.9 1,917.9 Others Non-current Liabilities 155.2 195.6 221.7 237.6 Total Liabilities 47,385.9 53,524.7 53,48. 55,43.3 Assets Gross Block 23,696.7 27,233.7 32,259.3 34,359.3 Less: Acc Depreciation 9,227.4 1,372.7 11,824.4 13,37.6 Net Block 14,469.3 16,861. 2,434.9 2,988.7 Capital WIP 3,537. 5,25.6 2,1. 2,1. Net Intangible Assets 41.9 446. 466. 486. Non-current Investments 8,485.5 13,493.8 9,73. 9,922.7 LT loans & advances 5.8 7.4 57.4 17.4 Current Assets Inventory 7,864. 7,237.2 8,468.2 9,261.1 Debtors 2,27.5 2,357. 2,177.5 2,381.4 Loans and Advances 3.4 4.2 3.8 4.1 Other Current Assets 1,615.5 2,46.4 1,693.6 1,852.2 Cash 2,747.3 2,594.9 2,121.4 1,125.2 Current Investments 199.8 993.5 1645.7 11642.6 Current Liabilities 6,83.1 8,856.6 7,547. 8,253.7 Creditors 2,551.2 3,382.3 2,782.4 3,42.9 Provisions 41.8 39.2 46.6 51. Short term debt & other CL 4,237. 5,435.1 4,718. 5,159.8 Application of Funds 47,385.9 53,524.7 53,48. 55,43.3 Key ratios (Year-end March) FY17 FY18E FY19E FY2E Per share data ( ) EPS 8.4 9.2 1.2 11.2 Cash EPS 9.3 1.2 11.4 12.5 BV 37.3 42.3 42.2 43.8 DPS 4.8 7.3 8.1 8.9 Cash Per Share 2.3 2.1 1.7.9 Operating Ratios (%) EBITDA Margin 36.4 38.3 39.5 39.9 PBT / Total Operating income 38.7 4.5 41.3 41.9 PAT Margin 25.4 27.6 27.7 28. Inventory days 72.4 65.6 7. 7. Debtor days 2.3 21.4 18. 18. Creditor days 23.5 3.7 23. 23. Return Ratios (%) RoE 22.5 21.3 24. 25.7 RoCE 32.9 3.9 34.6 37.1 RoIC 32.7 29.7 34.2 35.9 Valuation Ratios (x) P/E 34.1 31. 28.2 25.4 EV / EBITDA 23.6 22.2 19.6 17.8 EV / Net Sales 8.7 8.6 7.8 7.2 Market Cap / Sales 8.8 8.6 7.9 7.2 Price to Book Value 7.7 6.8 6.8 6.5 Solvency Ratios Debt/EBITDA.... Debt / Equity.... Current Ratio 3.2 2.5 3. 3. Quick Ratio 2. 1.7 1.9 1.9. ICICI Securities Ltd Retail Equity Research Page 6
ICICI Direct coverage universe (FMCG) CMP M Cap EPS ( ) P/E (x) Price/Sales (x) RoCE (%) RoE (%) Sector / Company ( ) TP( ) Rating ( Cr) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E Colgate (COLPAL) 1,174 1,12 Hold 29,918 21.2 22.9 24.1 55.3 51.4 46.4 6.7 6.8 6.1 64.1 64. 62.6 45.3 46.1 45.1 Dabur India (DABIND) 374 415 Buy 65,166 7.2 7.7 8.8 51.6 48.5 42.5 8.5 8.4 7.4 28. 26.2 27.7 26.4 23.8 24.8 GSK CH (GLACON) 5,948 7, Buy 24,813 156.1 166.5 184. 38.1 35.7 38. 5.6 5.7 5.3 3.8 29.8 29.8 21. 2.1 2.5 Hindustan Unilever (HINLEV) 1,574 1,55 Hold 325,8 2.8 24.2 29.2 75.7 64.9 53. 9.6 9.6 8.2 74.9 79.9 16.1 66.6 74.7 87.5 ITC Limited (ITC) 285 33 Buy 347,416 8.4 9.2 1.2 33.9 3.8 32.5 8.8 8.6 7.9 32.9 3.9 34.6 22.5 21.3 24. Jyothy Lab (JYOLAB) 391 42 Buy 6,788 11.1 7.5 9.3 35.2 52.2 45. 4. 4.1 3.6 28.1 25.5 28.6 3.9 2.6 24.1 Marico (MARLIM) 318 362 Buy 4,254 6.3 6.4 7.8 5.6 49.6 46.4 6.8 6.4 5.1 44.5 38.9 44.1 34.9 32.5 35.7 Nestle (NESIND) 9,637 9,95 Buy 86,643 127.1 164. 198.4 75.8 58.8 5.2 8.5 7.7 6.7 34.9 46.3 47.6 37.6 43.1 42.7 Prabhat Dairy (PRADAI) 18 215 Buy 1,797 4.8 5.7 8.6 38.3 32.5 21.5 1.3 1.1 1. 8. 9.1 12.5 5.1 6.1 9.4 VST Industries (VSTIND) 3,7 3,9 Buy 4,815 98.1 117.8 139.1 31.3 26.1 28. 5.2 5.1 4.5 42. 46.9 47.5 28.1 31.3 33.4 Varun Beverage (VARBEV) 692 84 Buy 13,163 11.7 15.5 22.4 61.6 46.4 32.2 3.3 2.6 2.4 12.7 16. 19.7 12.1 14.6 19.1 ICICI Securities Ltd Retail Equity Research Page 7
RATING RATIONALE ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/2% for large caps/midcaps, respectively, with high conviction; Buy: >1%/15% for large caps/midcaps, respectively; Hold: Up to +/-1%; Sell: -1% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICI Direct Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai 4 93 research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 8
ANALYST CERTIFICATION We /I, Sanjay Manyal, MBA (Finance) and Kapil Jagasia, CFA, MBA (Finance), Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & conditions and other disclosures: ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities Limited is a Sebi registered Research Analyst with Sebi Registration Number INH99. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. ( associates ), the details in respect of which are available on www.icicibank.com. ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securitiesis under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months. ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report. It is confirmed that Sanjay Manyal, MBA (Finance) and Kapil Jagasia, CFA, MBA (Finance), Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report. It is confirmed that Sanjay Manyal, MBA (Finance) and Kapil Jagasia, CFA, MBA (Finance), Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report. We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. ICICI Securities Ltd Retail Equity Research Page 9