Itc Limited Equity Research
Business Description and Industry Overview:
ITC has operations in the FMCG (Fast Moving Consumer Goods) industry, Hotels(exclusive franchise in India of two brands owned by Sheraton International Inc), Paperboards & Specialty Papers, Packaging, Agri-Business and Information Technology. It is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery.
Competitive Positioning and Strategy
ITC Limited is competitively positioned owing to its brand strength, pricing power, and the addictive nature of its core product. * With a market share of ~80% in terms of value in cigarette market in India it has been able to raise prices while maintaining volume growth. * Cigarettes account for 56.2% of consolidated net sales and 87.1% of operating income. * ITC is ploughing back this cash by investing in product innovation and marketing its core brands.It has also recently expanded its product set to include lower-priced products (which are subject to a lower tax rate) thereby earning solid sales growth and further operating margin expansion in its cigarette business, despite rising cigarette taxes.
Analysis
Y/e 31 Mar (Rs m) | FY12 | FY13 | FY14E | | Revenues | 2,47,984 | 2,96,056 | 3,48,005 | | yoy growth (%) | 17.2 | 19.4 | 17.5 | | Operating profit | 84,996 | 1,03,318 | 1,23,020 | | OPM (%) | 34.3 | 34.9 | 35.4 | | Reported PAT | 61,624 | 74,184 | 88,423 | | yoy growth (%) | 23.6 | 20.4 | 19.2 | | EPS (Rs) | 7.9 | 9.4 | 11.2 | | P/E (x) | 42.5 | 35.7 | 29.9 | | Price/Book (x) | 13.9 | 11.9 | 10.4 | | EV/EBITDA (x) | 30.5 | 25.3 | 21.1 | | Debt/Equity (x) | 0 | 0 | 0 | | RoE (%) | 35.5 | 36.1 | 37.1 | | RoCE (%) | 49.1 | 49.7 | 51.1 | | * Revenue grew by ~19% yoy to Rs81.8bn, driven by cigarettes , Other-FMCG and agri segments. Cigarette volumes grew by ~3% yoy. * EBIT margins expand by 70bps to 31.6%. * OPM
ITC has operations in the FMCG (Fast Moving Consumer Goods) industry, Hotels(exclusive franchise in India of two brands owned by Sheraton International Inc), Paperboards & Specialty Papers, Packaging, Agri-Business and Information Technology. It is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery.
Competitive Positioning and Strategy
ITC Limited is competitively positioned owing to its brand strength, pricing power, and the addictive nature of its core product. * With a market share of ~80% in terms of value in cigarette market in India it has been able to raise prices while maintaining volume growth. * Cigarettes account for 56.2% of consolidated net sales and 87.1% of operating income. * ITC is ploughing back this cash by investing in product innovation and marketing its core brands.It has also recently expanded its product set to include lower-priced products (which are subject to a lower tax rate) thereby earning solid sales growth and further operating margin expansion in its cigarette business, despite rising cigarette taxes.
Analysis
Y/e 31 Mar (Rs m) | FY12 | FY13 | FY14E | | Revenues | 2,47,984 | 2,96,056 | 3,48,005 | | yoy growth (%) | 17.2 | 19.4 | 17.5 | | Operating profit | 84,996 | 1,03,318 | 1,23,020 | | OPM (%) | 34.3 | 34.9 | 35.4 | | Reported PAT | 61,624 | 74,184 | 88,423 | | yoy growth (%) | 23.6 | 20.4 | 19.2 | | EPS (Rs) | 7.9 | 9.4 | 11.2 | | P/E (x) | 42.5 | 35.7 | 29.9 | | Price/Book (x) | 13.9 | 11.9 | 10.4 | | EV/EBITDA (x) | 30.5 | 25.3 | 21.1 | | Debt/Equity (x) | 0 | 0 | 0 | | RoE (%) | 35.5 | 36.1 | 37.1 | | RoCE (%) | 49.1 | 49.7 | 51.1 | | * Revenue grew by ~19% yoy to Rs81.8bn, driven by cigarettes , Other-FMCG and agri segments. Cigarette volumes grew by ~3% yoy. * EBIT margins expand by 70bps to 31.6%. * OPM