26 October 2016
2QFY17
Results Update | Sector: Consumer
ITC
Buy
BSE SENSEX
27,836
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
S&P CNX
8,615
ITC IN
12070.8
2883.7 / 44.1
266 / 178
-3/2/-1
2634
100.0
CMP: INR239
TP: INR285 (+19%)
Cig volumes surprise on the upside
2QFY17 revenues better than estimate:
Net revenues (Ind-AS) increased 9.8%
YoY (est. of +9% YoY) to INR96.6b. EBITDA and PAT were below estimates due
to lower-than-expected EBITDA margin (-80bp YoY v/s est. of +50bp) and PAT
before other comprehensive income (+10.5% YoY to INR25b v/s est. of
+13.5%). Absolute sales, EBITDA and PAT numbers differ from our estimates
due to Ind-AS adjustments in the base quarter.
We reckon cig volumes were up 4% YoY
(best numbers since 4QFY13 and
better than our expectation of +2%), aided by higher growth in the sub-65mm
segment (now well over 20% share in overall volumes, in our view), benign
base (2QFY16: 14% volume decline) and lower price increases of late. Cig
revenues and EBIT grew 7.1% and 8.4% YoY, respectively (like-to-like), with
40bp expansion of cig EBIT margin (despite mix impact YoY). While
performance on cig volumes has been creditable, base is less favorable going
forward (3QFY16 and 4QFY16 base of -5% and 0%, respectively).
Non-cig FMCG business posted robust 13.3% YoY sales growth,
which is highly
creditable in a weak operating environment. The segment reported EBIT loss of
INR33m, worse than our expectations of marginal profit, but better than
INR45m EBIT loss in 1QFY17. Agri business revenue increased only 2% as
currency depreciation in Brazil, Russia and Australia has made their agri
products more competitive. Margins were flat YoY.
Maintain Buy:
Near-term challenges remain due to weaker cig volume base
going forward and potential cess on cigarettes (to be decided by GST Council in
November). However, cig volume growth in FY17 is likely to be better than
preceding years, and other FMCG is showing resilience in a weak market. At
22.7x FY18E, ITC trades at significant discount to peers. Maintain
Buy
with
target multiple of 25x September 2018E EPS (target price of INR285).
Financials & Valuations (INR b)
2016 2017E
Y/E Mar
Net Sales
362.2 397.7
EBITDA
137.2 151.3
NP
93.1 108.5
EPS (INR)
7.7
9.0
EPS Gr. (%)
-3.5
16.5
BV/Sh. (INR)
27.3
31.8
RoE (%)
29.3
30.4
RoCE (%)
27.8
29.2
P/E (x)
31.0
26.6
P/BV (x)
8.8
7.5
EV/EBITDA (x)
19.6
17.6
Div. Yield
2.9
2.4
2018E
448.5
176.7
126.8
10.5
16.9
36.6
30.7
30.0
22.7
6.5
14.9
2.8
Estimate change
TP change
Rating change
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Krishnan Sambamoorthy
(Krishnan.Sambamoorthy@MotilalOswal.com); +91 22 6129 1545
Vishal Punmiya
(Vishal.Punmiya@MotilalOswal.com); +91 22 6129 1547