ITC LIMITED November 02, 2017 Current Price: STOCK DATA VALUE PARAMETERS ` 269.7 BSE Code 500875 NSE Symbol Reuters Bloomberg ITC ITC.BO ITC IN Standalone Results In Cr. Particulars Qtr Ending Qtr Ending Sep. 17 Sep. 16 Var. (%) Sales 10314.13 9660.71 7 OPM (%) 36.5 37.6 OP 3761.51 3630.03 4 Other Income 494.21 475.35 4 PBIDT 4255.72 4105.38 4 Interest (Net) 29.01 10.72 171 PBDT 4226.71 4094.66 3 Depreciation 282.42 268.44 5 PBT 3944.29 3826.22 3 Tax 1304.45 1326.19-2 PAT 2639.84 2500.03 6 EPS 8.7 8.2 Price (Rs) 269.7 52 W H/L(Rs) 353.20/222.05 Mkt. Cap.(Rs Cr) 328643.28 Latest Equity(Subscribed) 1218.55 Latest Reserve 43356.21 Latest EPS -Unit Curr. 8.63 Latest P/E Ratio 31.25 Latest Bookvalue -Unit Curr. 36.58 Latest P/BV 7.37 Dividend Yield -% 1.76 Face Value 1 SHARE HOLDING PATTERN (%) Description as on % of Holding 30/09/2017 Foreign 19.85 Institutions 36.35 Non Promoter Corp. Hold. 33.44 Public & Others 10.37 ITC Ltd. s quarterly profit in line with the analyst estimates For Q2 FY18, the net sales have increased by 7% to Rs 10314.13 crore. The Company's performance during the quarter was relatively subdued due to severe pressure on the legal Cigarette industry and sluggish demand conditions prevailing in the FMCG industry. Operating conditions in the Agri Business and Hotels segment also remained challenging. OPM decreased by 111bps to 36.5%. The net profit inclined by 6% to Rs 2639.84 crore due to increase in topline. Standalone Performances (Sales figures are not comparable due to change in taxation system to GST from Q2 FY17) For quarter ended September 2017 (Q2 FY18) The net sales have increased by 7% to Rs 10314.13 crore. The Company's performance during the quarter was relatively subdued due to severe pressure on the legal Cigarette industry and sluggish demand conditions prevailing in the FMCG industry. Operating conditions in the Agri Business and Hotels segment also remained challenging. OPM decreased by 111bps to 36.5%. The operating profit inclined by 4% to Rs 3761.51 crore. Other income increased by 4% to Rs 494.21 crore. The depreciation has increased by 5% to Rs 282.42 crore. The profit before tax (PBT) has increased by 3% to Rs 3944.29 crore. The total tax outgo declined by 2% to Rs 1304.45 crore. The effective tax rate was at 33.07%, down from 34.66%. The net profit inclined by 6% to Rs 2639.84 crore due to increase in topline. Segment Results (Sales figures are not comparable due to change in taxation system to GST from Q2 FY17) FMCG-Cigarette The standalone sales for Q2 FY18 stood at Rs 4554.21 crore, contributing 42% revenues. Profits before interest and tax (PBIT) margins of the division stood at 72.3%. PBIT grew by 2% to Rs 3291.67 crore. The segment accounted for 86% of total PBIT. Consequent to the introduction of Goods and Services Tax (GST) with effect from 1st July 2017, 1
Standalone Segment results In Cr. Segment Revenue Qtr Ended Qtr Ended Var. % to Sep. 2017 Sep. 2016 (%) Total FMCG-cigarette 4554.21 8528.47 42 others 2804.11 2671.66 26 Total FMCG 7358.32 11200.13 67 Hotels 300.18 297.34 3 Agri business 1967.98 1880.06 18 Paperboard, paper & packaging 1309.41 1331.41 12 Total 10935.89 14708.94 100 Less : Inter Segment Revenue 1259.69 1217.57 Revenue from Operations 9676.2 13491.37 2. Segment Results FMCG-cigarette 3291.67 3216.88 2 86 others 20.49-3.26 LP 1 Total FMCG 3312.16 3213.62 3 86 Hotels 4.24 0.65 552 0 Agri business 256.2 296.96-14 7 Paperboard, paper & packaging 274.19 231.95 18 7 TOTAL 3846.79 3743.18 3 100 Central Excise [other than National Calamity Contingent Duty (NCCD) on cigarettes], Value Added Tax (VAT) etc. have been replaced by GST. Pressure on the legal cigarette industry escalated significantly during the quarter on account of the steep increase in tax incidence under the GST regime and additional burden on the Business due to GST transition costs. The legal cigarette industry, already reeling under the cumulative impact of steep increase in taxation over the last 5 years and intense regulatory pressures, was further impacted by the sharp upward revision in GST Compensation Cess announced by the GST Council at its meeting on 17th July, 2017. 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 as aforestated resulted in an incremental tax burden of over 20% on the Company. 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 2011-12, i.e. the last 6 years. 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 w.e.f. 18th July 2017 which impacted pipeline stocks. The standalone sales for H1 FY18 stood at Rs 13328.37 crore, contributing 50% revenues. Profits before interest and tax (PBIT) margins of the division stood at 49.3%. PBIT grew by 6% to Rs 6565.8 crore. The segment accounted for 86% of total PBIT. 2
Other FMCG The standalone sales for Q2 FY18 stood at Rs 2804.11 crore PBIT margins stood at 0.7%. PBIT stood at Rs 20.49 crore. Segment Revenue registered robust growth of 10% 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 partly offset by the impact of ongoing restructuring of retail & trade footprint in the Lifestyle Retailing Business. While offtake in the retail channel has normalised progressively through the quarter, the wholesale channel is yet to fully recover. Market standing stood enhanced across major categories, particularly in atta, potato chips, premium cream biscuits and deodorants. The standalone sales for H1 FY18 stood at Rs 5405 crore. PBIT margins stood at 0.5%. PBIT stood at Rs 25.92 crore. Branded Packaged Foods The Branded Packaged Foods Businesses posted healthy growth in revenue led by atta, snacks and noodles In the 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 the quarter. The Business also introduced Bingo! 'No Rulz' a-first-of-its-kind offer comprising 4 different shapes of the product in a single pack. The product is available in 3 exciting flavours and has received encouraging response from consumers. 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. The recently launched YiPPee! Mood Masala variant continued to garner increasing consumer franchise across target markets. 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, the Business 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' - a unique offering that combines the goodness of roasted Bengal Gram flour with great taste, Farmlite Digestive High Fibre' biscuits with the goodness of five grains and Sunfeast A2 Naat Maad Paal' biscuits enriched with native Indian cow milk. Portfolio premiumisation continued in the Confectionery category with the share of Re.1 and above' products further increasing during the quarter. The Business launched Candyman Cola Josh' an innovative offering with a fizzy' powder at the heart of the candy that provides a sensorial experience akin to a soft drink. In the Dairy and Beverages Business, B Natural juices continued to register strong growth leveraging a portfolio of differentiated products including a wide range of Not from Concentrate' variants that are made directly from fruit pulp thereby providing consumers a more nutritive and natural tasting experience. The recently launched, first-to-market 100% Not from Concentrate Pomegranate juice' continued to garner impressive consumer franchise in the health and wellness segment. A range of gift packs launched during the quarter ahead of the festive season was well received in the target segments. In Dairy, Aashirvaad Svasti' ghee was extended to the Delhi & NCR markets during the quarter. During the quarter, the Business expanded the footprint of Fabelle Chocolate Boutiques', hitherto available exclusively across ITC Hotels, to premium outlets in Bengaluru, Kolkata and Chennai. The Fabelle range of exquisitely crafted luxury gift packs with interesting personalisation options received encouraging response from discerning consumers in the festive gifting season. 3
Personal Care Products The Personal Care Products Business continues to focus on product mix enrichment and augmenting its product portfolio. The Engage On' range of pocket perfumes recorded robust growth on the back of its unique value proposition combining convenience and affordability. The Engage portfolio stood expanded during the quarter with the launch of Engage On+' premium perfumes for women. The Fiama shower gel range and the recently launched Vivel Lotus Oil soap continue to garner impressive traction with consumers. During the quarter, the Business also launched moisturising skin cream under the recently acquired Charmis' brand. The Business continued to leverage innovative brand campaigns and social media platforms to deepen consumer engagement. In line with its brand credo - Ab Samjhauta Nahin', Vivel teamed up with Ms. Srishti Bakshi, the UN Women Empower Champion for Change 2017', in her journey to raise awareness on safety for women and women's rights. The 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 the ensuing quarter. Currently, over 20 projects are underway and in various stages of development from land acquisition/site development to construction of buildings and other infrastructure. Hotels The standalone sales for Q2 FY18 stood at Rs 300.18 crore. PBIT margins stood at 1.4%. The PBIT grew by 552% to Rs 4.24 crore. 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 as compared to the corresponding quarter in the previous year, the same remained muted due to the challenging business context as aforestated and gestation costs of the recently commissioned ITC Grand Bharat, Gurgaon. Renovation work at ITC Maurya and ITC Maratha also weighed on overall performance. The Business commissioned WelcomHotel Coimbatore on 1st October 17 and made steady progress during the quarter in the construction of ITC Hotels at Hyderabad, Kolkata & Ahmedabad and WelcomHotels in Guntur and Bhubaneswar. The standalone sales for H1 FY18 stood at Rs 605.07 crore. PBIT margins stood at 1.6%. The PBIT grew by 411% to Rs 9.55 crore. This division contributed around 2% to total revenue Agri business The standalone sales stood at Rs 1967.98 crore in Q2 FY18. PBIT margin stood at 13%. The PBIT declined by 14% to Rs 256.2 crore. This division contributed around 18% to total revenue and 7% to total PBIT. The Business provides strategic sourcing support to the Company's Cigarette business and leverages its deep rural linkages to source superior quality wheat, spices and fruit pulp at competitive prices for the Branded Packaged Foods Businesses. The Business continues to leverage the e-choupal network to source superior quality wheat at competitive cost and deliver substantial savings to the system through efficient logistics management and other costoptimisation initiatives. The performance of the Agri Business Segment during the quarter was impacted by shortage of leaf tobacco in Andhra Pradesh due to lower crop output on account of drought in 2016 & adverse crop quality, relative strength of the Indian Rupee vis-à-vis currencies of competing origins and limited trading opportunities in other agri-commodities. The standalone sales stood at Rs 4728.5 crore in H1 FY18. PBIT margin stood at 10.4%. The PBIT declined by 8% to Rs 491.31 crore. This division contributed around 18% to total revenue and 6% to total PBIT. 4
Paperboard, paper & packaging The standalone sales stood at Rs 1309.41 crore for Q2 FY18. PBIT margin stood at 20.9%. PBIT increased by 18% to Rs 274.19 crore.. This division contributed around 12% to total revenue and 7% to total PBIT. Paperboards, Paper & Packaging Segment Results registered a robust growth of 18% 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, surplus capacity in the domestic industry along with zero duty imports under Free Trade Agreement with ASEAN countries and cheap imports from China. Capacity utilization of India's first Bleached Chemical Thermo Mechanical Pulp mill (BCTMP), recently commissioned by the Business, was progressively ramped up thereby reducing dependence on imported pulp. Capacity expansion projects in the Value Added Paperboard and Décor segments are also making satisfactory progress. The Packaging Business strengthened its capabilities as a one-stop-shop for packaging solutions with the addition of a rigid box and a flexo corrugation line. These lines will enable expanding business especially in Consumer Electronics, Footwear, Fresh Fruits & Ready-to- Shelf segments The standalone sales stood at Rs 2669.23 crore for H1 FY18. PBIT margin stood at 19.9%. PBIT inclined by 11% to Rs 531.48 crore.. This division contributed around 10% to total revenue and 7% to total PBIT. 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