Earnings Update -ITC (ITC IN) - Decent performance - CSEC Research

Decent performance

- Revenue (excl. excise duty) grew by 6.2% YoY (+10.6% QoQ) to INR 150.1bn; Revenue growth was aided by Agri commodities, branded packaged foods and personal care products. Cigarette business grew by 4.8% YoY to INR 89.5bn and we estimate the volume growth to be flat, partially due to the price increase in Gold flake and Navy cut in December 2016; while cigarette EBIT grew 8% YoY to INR 32.6bn. Cigarette's EBIT margin improved by 110bps YoY to 36.4%.

- Non cigarette FMCG business grew 6.5% YoY (+12.3% QoQ) to INR 28.9bn; EBIT de-grew by 29.5% YoY to INR 555.6mn due to input price escalation and higher gestation cost for new launches, investment in brand building. Company launched several products in FY17 such as, Aashirvaad Sugar Release Control Atta, Delishus Expressions, Fabelle, etc.

Valuation: We are positive on the long term fundamentals of the cigarette business, coupled with market share gains in the other FMCG business, re-launch of fruit juice brand and launch of dairy products augurs well for ITC. At CMP, ITC trades at an attractive valuation of 31.1 and 27.2X to FY18E and FY19E EPS. We assign a target P/E of 30X on FY19E consensus earnings, to arrive at a target price of INR 342 and assign an OUTPERFORMER rating.

Risks: Adverse Raw material, currency movement, continuous increase in the sin tax will hamper demand for cigarette in the organized segment.

Shares of ITC LTD. was last trading in BSE at Rs.311 as compared to the previous close of Rs. 317.5. The total number of shares traded during the day was 568616 in over 4181 trades.

The stock hit an intraday high of Rs. 318.4 and intraday low of 309.7. The net turnover during the day was Rs. 176927687.

Source : Equity Bulls

Keywords