ITC Ltd (ITC) was incorporated on August 24, 1910, under the name Imperial Tobacco Company of India Ltd. to make cigarettes and tobacco.

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1 CMP Rs.170 TARGET PRICE Rs INVESTMENT Medium term HORIZON RECOMMENDATION BUY DATE 12/01/2011 COMPANY DESCRIPTION ITC Ltd (ITC) was incorporated on August 24, 1910, under the name Imperial Tobacco Company of India Ltd. to make cigarettes and tobacco. ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Personal Care, Stationery, Safety Matches and other FMCG products. The company is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery. ITC is largest Agri products exporter from India. Latest initiatives taken by company has paid well for its growth, Company diversified into cloths retailing, agri products, Body and Hair care segments, which will augment its top line and bottom line in future. ITC is rated among the World's Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes magazine, among India's Most Respected Companies by Business World and among India's Most Valuable Companies by Business Today. ITC ranks among India's `10 Most Valuable (Company) Brands', in a study conducted by Brand Finance and published by the Economic Times. ITC also ranks among Asia's 50 best performing companies compiled by Business Week.

2 BUSINESS AREA FMCG Paper Boards Agri Business Hotels Information & Packaging Technology Cigrattes & Paper Boards Agri ITC Banking & Cigars and speciality commodities and Welcomgroup Financial papers rural services Services Foods Packaging e-choupal ITC Maurya Sheraton Lifestyle retailing Leaf Tobacco Retail, manufacturing, engineering services Personal Care Spices Travel & Hospitality Education and Agri Inputs stationery Safety matches Agarbattis ITC BRANDS

3 ITC SUBSIDIARIES ITC Infotech Surya Nepal private Limited Landbase King Maker Marketing Inc., USA Technico Pty Limited, Australia Russell Credit Limited Wimco Limited Srinivasa Resorts Limited Fortune Park Hotels Limited Bay Islands Hotels Limited Gold Flake Corporation Limited JOINT VENTURES Maharaja Heritage Resorts Ltd. ITC Filtrona ASSOCIATE COMPANIES Gujarat Hotels Ltd. International Travel House

4 SHAREHOLDING PATTERN as on 30/09/ Promoters Institutions Overseas corporate bodies+ Others Public REVENUE STRUCTURE 18% 50% 21% 4% 25% Paper Board_Packaging FMCG(others) Agribusiness Hotels FMCG(Cigarettes)

5 RECENT QUARTER PERFORMANCE ITC posted a good rise of 23.45% in its net profit for the quarter ended September 2010, at Rs crore as compared to Rs crore posted in September Total income has increased by 16.85% from Rs crore for the quarter ended September 30, 2009 to Rs crore for the current quarter. The company reported a good 20.55% increase in operating profit to Rs crore as compared to Rs crore of corresponding quarter previous year. ITC's total expenditure rose 16.25% to Rs crore from Rs crore, largely driven by a 23.10% jump in raw material costs to Rs 1, crore in the quarter and Purchase of traded goods cost rose % to crore. Employee costs for the period rose 7.93% to Rs crore. QUARTERLY ANALYSIS (Rs. in crores) Shares held Net Sales Total Expenditure PBIDT (Excl OI) PAT PBIDTM% (Excl OI) PBIDTM% PATM% EPS (INR) SEGMENT WISE GROWTH Segment wise, net revenue from FMCG as on whole increased by % to Rs 3, crore from Rs crore of which Cigarettes net revenue was up by 15.93% to Rs crore from Rs crore. Net revenue from Hotels segment improved by 20.05% to Rs crore from Rs crore. Agri Business net revenue showed increment of 21.52% to Rs crore from Rs crore in the same quarter last year. Revenue from the Paperboard, paper & packaging segment increased by 16.29% to Rs crore from Rs crore.

6 30.00% 27% 25.00% 20.00% 15.00% 16.29% 21.52% 20.05% 15.93% Growth 10.00% 5.00% 0.00% PaperBoard&Pckg FMCG(Other) Agribusiness Hotel FMG(Cigarettes) ANNUAL REVIEW (Rs. in crores) Description No. of Months Net Sales Growth% Total Income Total Expenditure PBIDT Growth% PBIT PBT PAT Growth% Cash Profit

7 PEER GROUP COMPARISON Company Net Sales PBIDT PAT PBIDTM% PATM% ROCE% ROE% Golden Tobacco Godfrey Phillips VST Industries ITC ITC SWOT ANALYSIS STRENGTHS ITC is a diversified company trading in a number of business sectors including cigarettes, hotels, paper, agriculture, packaged foods and confectionary, branded apparel, personal care, greetings cards, Information Technology, safety matches, incense sticks(agarbattis) and stationery. Company s institutional strengths deep understanding of the Indian consumer, strong Trademarks, deep and wide distribution network, agri-sourcing skills, packaging know-how and cuisine expertise will continue to rapidly grow the new FMCG businesses. WEAKNESS Although ITC is a diversified company trading in a number of business sectors such as FMCG, Hotels, IT, safety matches, incense sticks, stationery etc., yet it does not have presence in many important sectors such as Insurance, Telecom, financial services when compared to other conglomerates like the Bharti group, Tata and the Ambani s. ITC is a local company and does not have a large portfolio of exports in either products or services. This makes the company weak in terms of being able to leverage global opportunities. OPPORTUNITIES ITC s Brand equity makes it successful in most sectors. ITC has been moving into new and emerging sectors including Information Technology, supporting business solutions. e-choupal is a community of practice that links rural Indian farmers using the Internet. It is also an ambitious project that has a goal of reaching 10 million farmers in 100,000

8 villages. It has already benefited 4 million farmers in villages. This platform provides ITC an opportunity to ride the rural growth. THREATS Risks and concerns The obvious threat is from competition, both domestic and international. The laws of economics dictate that if competitors see that there is a solid profit to be made in an emerging consumer society then ultimately new products and services will be made available. Global companies will see India as an exciting opportunity for themselves to find new market segments for their own offerings. This will put ITC under constant and sustained competitive pressure from international offerings. Government policies through higher excise duties on tobacco, restrictions on advertisements, Health campaigns related to a complete a ban on tobacco is a serious threat for the company as Tobacco and allied products account for about 50% of the company s turnover. INVESTMENT RATIONALE Improvement in overall business scenario All segments of ITC such as cigarettes, the other FMCG group, paperboards and packaging, agri business and hotels have grown very well in last one year. Recovery posted by major economies of the world in general and BRIC nation in particular also supported the good show posted by ITC. Opportunities arising out from FMCG and personal care business As a natural hedge against the maturing pattern of its FMCG( Tobacco) based product line, ITC has ventured into other categories of FMCG products such as Fast food items ( BINGO, SUNFEAST) and personal hygiene products such as bathing soap and hair shampoos. Given the inherently essential nature of the products, the whole FMCG sector is more or less immune to recessionary pressures. Robust GDP growth, opening up of rural markets, increased income in rural areas, growing urbanization along with evolving consumer lifestyles and buying behaviors will be the main drivers of the growth in the FMCG sector. Opportunities arising from the rural business With the presence of 12.2% of the world population in the villages of India, the Indian rural FMCG market is something no one can overlook. Increased focus on farm sector

9 will boost rural incomes, hence providing better growth prospects to the FMCG companies. ITC is having good presence in rural India owing to its e-choupal initiative. Such positive development will certainly help the company in rapid expansion. Emphasis on Research & Development, Quality and Product development The Company s R&D strategy is anchored on the development and speedy commercialization of globally competitive products, processes and technologies through best-in-class research interventions backed by world-class infrastructure. ITC is utilizing its R&D hubs for developing new products for the Company's Branded Packaged Foods and Personal Care businesses. Beside these, R&D hub also has evaluated and introduced several new varieties of tobacco and eucalyptus that are targeted at increasing the genetic and trait diversities in these crops. LATEST UPDATES ITC Welcomgroup to invest $2 Billion to double room inventory ITC-Welcomgroup, the second largest hotel chain in the country and a division of ITC Ltd., plans to invest over $2 billion (around Rs.9000 crore) in the next 2-3 years to double its room inventory across the country. The company has been pursuing an aggressive investment-led growth strategy adding large properties to its portfolio of super luxury hotels. In the near term 2 ITC Luxury Collection Hotels are planned- a 600 room hotel in Chennai and a 400 room hotel in Kolkata. Though the focus will be on such super premium hotels, ITC will develop properties across its four categories- Luxury hotels, Business class hotels, Budget hotels and heritage properties. Hence the growth will be across all the segments of the entire portfolio. Going forward, ITC Welcomgroup also foresees a steep increase in business induced tourism in the country. Chennai Hotels likely to be commissioned in FY11-12 ITC s 600-room hotel in Chennai is on track to be launched in the last quarter of the current calender year. This would add 20% Capacity to ITC s current luxury inventory of 3300 rooms. Tobacco procured for FY12 consumption at 10% YoY Lower price, positive for cigarette EBIT Margins ITC has largely completed the tobacco procurement for FY12 cigarette consumption, and the prices of the procured tobacco has been 10% lower YoY. This is in contrast to 20-40% annual increase in tobacco prices that were seen in FY 09 and FY10. Hence, the

10 swing from a 20-40% increase in this cost to a 10% decline will provide a comfortable cushion to cigarette EBIT Margin. FMCG (Other) segment continues to see improvement The company is clearly focusing on improving foods profitability with price hikes/grammage (measure of paper weight) cuts of 5-7% taken a few months ago. Moreover, ITC s mid to premium end biscuits is growing strongly largely driven by advertising investments. In personal care, ITC is consolidating its market share gains in FY10 in soaps and shampoo and gradually extending distribution of its fairness across India. RECOMMENDATION: BUY ITC LTD. The company s thrust on larger investments towards increasing the scale of the other businesses (such as non-cigarette FMCG, hotel, and paper, paperboard and packaging businesses) provide greater visibility of the strong earnings growth in the long run. We expect that robust sales growth in cigarette segment, impressive performance by Hotels and FMCG (Others) will drive the company s topline. With the economy back on the growth path, and the consumer sentiment improving consequently, the fast moving consumer goods industry looks poised for a happy, healthy and prosperous year ahead. At current market price of Rs.170, the stock trades at 15.9 times its FY10EPS of Rs.10.64, and we expect the company to trade at 16 times its FY2011E EPS of Rs and thus, we maintain a BUY rating for a potential upside of 14-17% and investors entering at this stage with a medium term view can see the stock at levels of Rs Disclaimer: The research reports provided is for the personal information for the authorized recipient and is not for public distribution and should not be reproduced or redistributed without prior permission. The information provided in the research documents is from publicly available data and other sources, which we believe, are reliable. Efforts are made to try and ensure accuracy of data. Investors should not solely rely on the information contained in the research documents and must make investment decisions based on their own investment objectives, risk profile and financial position. CFS FINANCIAL SERVICES RESEARCH DESK