RESULTS REVIEW 2QFY18 30 OCT 2017 ITC BUY HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters Cigarette volume in-line ITC net revenues were up 1% YoY at Rs 97.6bn. Like- to-like revenue grew 4% vs. 6% expectation. EBITDA and PAT grew 4% and 6% respectively. Amidst a rise in taxes, cigarette revenue growth was at ~2%, impacted by ~6% volume contraction (5% fall anticipated). The hike in Cigarette prices was ~11%, but an unfavourable product mix (higher share of <65mm Cigarettes) impacted Cigarette revenue growth. Volume pressure was softer in September, and could result in better volume traction in the coming quarters. FMCG at 10% revenue growth (like- to-like) and Paper at 18% EBIT growth were outliers in the Non-cigarette segment. Cigarette business, despite punitive taxes, registered ~10% and ~9% revenue CAGR in the last 10 and 5 years resp. We expect ITC to deliver ~7% CAGR in the Cigarette business over FY17-20E. Non-cigarette business can improve gradually, as most of their demand drivers are in a recovery stage. We expect ~13% sales CAGR over FY17-20E. ITC is a market leader in Cigarettes (~70% market share), notebooks, valued-added paperboards and a critical player in biscuits. The company operates at EBITDA margin of 36%, along with core RoCE of ~40%. We have BUY rating with a TP of Rs 358, based on 32x Sep-19EPS. Highlights for the quarter Cigarette EBIT growth at ~4%: ITC’s like-to-like net revenue grew by 4%. King-sized cigarettes have witnessed the greatest impact of GST. The Cigarette business clocked revenue and EBIT growth of 4% and 4% (adjusted for one-time expense), respectively. Non-Cigarette EBIT growth of 5.5%: FMCG revenue was up 10%, with EBIT margin at 1% (up 85bps YoY), well supported by restocking. Hotels’ revenue rose by a mere 1%. Room revenues grew at a healthy pace, but F&B was impacted by the highway liquor ban. Agri revenues saw 5% growth, while EBIT margin contracted 280bps, owing to a steep rise in raw materials. Paper revenue was down 2%, while EBIT grew up by 18%, due to favourable product mix and cost-saving initiatives. PAT grew by 6%: PAT was up by 6% to Rs 26.4bn, lower than our estimate of Rs 27.8bn. Near-term outlook: With anticipation of improvement in operating performance, we expect healthy upside in the near-term too. Financial Summary (Rs mn) 2QFY18 2QFY17 YoY (%) 1QFY18 QoQ (%) FY16 FY17 FY18E FY19E FY20E Net Revenue 97,639 96,607 1.1 99,547 (1.9) 3,91,921 4,28,036 4,63,293 5,10,314 5,60,041 EBITDA 37,616 36,301 3.6 37,464 0.4 1,44,509 1,54,359 1,68,997 1,89,275 2,09,895 APAT 26,399 25,001 5.6 25,605 3.1 95,009 1,04,772 1,15,557 1,29,108 1,42,481 EPS (Rs) 2.2 2.1 5.6 2.1 5.8 7.9 8.6 9.5 10.6 11.7 P/E (x) 34.2 31.2 28.3 25.3 22.9 EV/EBITDA (x) 21.2 19.9 18.2 16.1 14.5 Core RoCE (%) 40.3 36.1 36.3 37.0 38.4 Source: Company, HDFC sec Inst Research INDUSTRY FMCG CMP (as on 27 Oct 2017) Rs 269 Target Price Rs 358 Nifty 10,323 Sensex 33,157 KEY STOCK DATA Bloomberg ITC IN No. of Shares (mn) 12,180 MCap (Rs bn)/(US$ mn) 3,281/50,454 6m avg traded value (Rs mn) 4,079 STOCK PERFORMANCE (%) 52 Week high / low Rs 368 / 222 3M 6M 12M Absolute (%) (6.7) (5.8) 10.8 Relative (%) (9.0) (16.2) (8.0) SHAREHOLDING PATTERN (%) Promoters - FIs & Local MFs 36.41 FPIs 21.12 Public & Others 42.47 Source : BSE Naveen Trivedi naveen[email protected]+91-22-6171-7324
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BUY Cigarette volume in-line - HDFC securities - 2QFY18 - HDFC sec... · Cigarette volume in-line . ITC net revenues were up 1% YoY at Rs 97.6bn. Like- ... to favourable product mix
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RESULTS REVIEW 2QFY18 30 OCT 2017
ITC BUY
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
Cigarette volume in-line ITC net revenues were up 1% YoY at Rs 97.6bn. Like-to-like revenue grew 4% vs. 6% expectation. EBITDA and PAT grew 4% and 6% respectively. Amidst a rise in taxes, cigarette revenue growth was at ~2%, impacted by ~6% volume contraction (5% fall anticipated). The hike in Cigarette prices was ~11%, but an unfavourable product mix (higher share of <65mm Cigarettes) impacted Cigarette revenue growth. Volume pressure was softer in September, and could result in better volume traction in the coming quarters. FMCG at 10% revenue growth (like-to-like) and Paper at 18% EBIT growth were outliers in the Non-cigarette segment. Cigarette business, despite punitive taxes, registered ~10% and ~9% revenue CAGR in the last 10 and 5 years resp. We expect ITC to deliver ~7% CAGR in the Cigarette business over FY17-20E. Non-cigarette business can improve gradually, as most of their demand drivers are in a recovery stage. We expect ~13% sales CAGR over FY17-20E. ITC is a market leader in Cigarettes (~70% market share), notebooks, valued-added paperboards and a critical player in biscuits. The company operates at
EBITDA margin of 36%, along with core RoCE of ~40%. We have BUY rating with a TP of Rs 358, based on 32x Sep-19EPS.
Highlights for the quarter
Cigarette EBIT growth at ~4%: ITC’s like-to-like net revenue grew by 4%. King-sized cigarettes have witnessed the greatest impact of GST. The Cigarette business clocked revenue and EBIT growth of 4% and 4% (adjusted for one-time expense), respectively.
Non-Cigarette EBIT growth of 5.5%: FMCG revenue was up 10%, with EBIT margin at 1% (up 85bps YoY), well supported by restocking. Hotels’ revenue rose by a mere 1%. Room revenues grew at a healthy pace, but F&B was impacted by the highway liquor ban. Agri revenues saw 5% growth, while EBIT margin contracted 280bps, owing to a steep rise in raw materials. Paper revenue was down 2%, while EBIT grew up by 18%, due to favourable product mix and cost-saving initiatives.
PAT grew by 6%: PAT was up by 6% to Rs 26.4bn, lower than our estimate of Rs 27.8bn.
Near-term outlook: With anticipation of improvement in operating performance, we expect healthy upside in the near-term too.
Like-to-like revenue growth was up 4% vs. our expectation of 6% growth Other expenses declined 41% owing to NCCD write back EBITDA grew slower at 3.6% than our estimate of 9%
Cigarette <65mm had a lower impact of GST. King size cigarettes have been impacted the most FMCG biz growth of 10% was inspiring, benefitting from channel restocking
Hotel growth was sluggish at 1%, impacted by the highway liquor ban. However, ARRs grew at a healthy pace Agri business was impacted by lower crop output and limited trading opportunities in agri-commodities
Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period
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ITC: RESULTS REVIEW 2QFY18
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