TP: INR420 (+19%) Buy

21 January 2015
3QFY15 Results Update | Sector: Consumer
ITC
BSE SENSEX
28,889
Bloomberg
S&P CNX
8,730
ITC IN
Equity Shares (m)
7,818.4
MCap INR b/USD b

400/311
-10/-11/-29
AvgVal(INRm)/Vol‘000 2,481/7,100
Free float (%)

100.0
Financials & Valuation (INR Billion)
Y/E MAR
2015E 2016E 2017E
Net Sales
365.0
413.4
470.7
EBITDA
137.7
156.4
180.6
Adj PAT
Adj.EPS
(INR)
Gr. (%)
98.0
112.1
130.0
12.3
14.1
16.4
11.5
14.4
16.0
BV/Sh.(INR) 35.7
RoE (%)
34.5
38.2
41.2
36.9
39.7
RoCE (%)
47.9
51.3
55.5
P/E (x)
28.6
25.0
21.6
P/BV (X)
9.9
9.2
8.6
Estimate change
TP change
Rating change
TP: INR420 (+19%)
Buy
Muted volumes not the new normal
2,759.6/45.9
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
CMP: INR353



ITC’s 3QFY15 performance was below our expectations. Sales grew 2.5% YoY to
INR89.4b (our estimate: INR96.9b), EBITDA grew 5.5% YoY to INR34.6b (our
estimate: INR37b), and adjusted PAT increased 10.5% YoY to INR26.4b (our
estimate: INR27.5b).
Cigarette volumes collapsed 12-13% to a multi-year low: Segment EBIT grew 8.8%
(lowest since 1QFY09) and margin expanded 520bp to 69.7%. The full impact of
excise duty hike (taken in July 2014) coupled with VAT increase in certain states
(Tamil Nadu, Kerala and Assam) impacted cigarette volumes. Three years of
consecutive 15%+ excise duty increase has resulted in aggressive price hikes by
ITC, which has kept cigarette volumes muted since FY12.
Non-Cigarette FMCG posted 11.4% sales growth: Segment volumes grew 7-8%
and EBIT was INR115m. Snacks, noodles and personal care outperformed, while
biscuits remained sluggish. We expect ITC to take price cuts in its FMCG portfolio
to pass on the benefits of input cost correction.
Agri revenues declined 10.6% YoY, impacted by absence of trading in soya and
margins expanded 340bp due to improvement in mix (better realization from leaf
tobacco). Hotels segment posted weak 4.7% YoY growth but margins contracted
1100bp due to lack of operating leverage and higher depreciation. Paper segment
revenue declined 4.7%, led by slowdown in FMCG and cigarettes while segment
EBIT declined 7.7% and margins contracted 60bp to 17.8%.
Maintain BUY: We have cut our earnings estimates for FY15-17 by 3-4% and
model 7.5% cigarette volume decline in FY15. The double digit volume decline is
an aberration in our view and does not set a new normal. At 25x FY16E and 21.6x
FY17E EPS, ITC trades at a discount of ~30% to the sector average. While we
remain bullish on ITC given the relatively attractive valuations, we expect (a)
recent policy action (ban on loose sticks, etc), and (b) speculation on potential
excise duty increase in the budget to cap near term outperformance. We maintain
Buy with a target price of INR420 (26x FY16E EPS, 20% discount to HUVR).
Gautam Duggad (Gautam.Duggad@MotilalOswal.com); +91 22 3982 5404
Manish Poddar (Manish.Poddar@MotilalOswal.com); +91 22 3027 8029
Investors are advised to refer through disclosures made at the end of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
ITC
Key Quarterly Charts
27.1
27.9
30.2
32.8
4QFY13
1QFY14
2QFY14
3QFY14
34.6
28.6
3QFY13
5
3QFY15
26.9
2QFY13
16
34.9
23.8
1QFY13
17
2QFY15
22.6
4QFY12
Source: MOSL, Company
18
32.8
23.8
3QFY12
86.2
3QFY14
2
88.0
77.8
2QFY14
15
12
3QFY15
73.4
1QFY14
18
89.3
81.8
4QFY13
19
2QFY15
76.3
3QFY13
20
91.6
71.5
2QFY13
21
1QFY15
66.5
1QFY13
12
21
91.5
68.6
4QFY12
9
62.0
10
13
15
19
1QFY15
18
19
EBITDA growth (%)
4QFY14
15
EBITDA (INR b)
25
23
3QFY12
14
18
20
Sales growth (%)
32.0
Net Sales (INR b)
Exhibit 2: EBITDA grew by 5% in 3QFY15
4QFY14
Exhibit 1: Sales came in 7.7% below expectations
Source: MOSL, Company
Exhibit 3: Cig EBIT margin expanded 520bp YoY to 69.7% (all time high)
21,124
22,417
24,117
26,526
25,519
27,218
28,821
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
62.6
22,335
64.4
3QFY13
64.8
69.7
28,863
63.4
20,802
58.3
2QFY13
61.1
67.8
18,998
3QFY12
61.4
64.8
1QFY13
54.1
4QFY12 17,579
18,442
57.0
57.5
EBIT Margins (%)
3QFY15
EBIT (INR m)
Source: MOSL, Company
Exhibit 5: Cig EBIT posted growth of 8.8%; lowest since
1QFY09
Exhibit 4: Cig volumes declined 13% (est. of -6%)
Cig EBIT growth (%)
Cig volume growth (%)
Source: MOSL, Company
21 January 2015
20.3
19.5
20.5
20.3
21.1
20.2
18.0
15.9
18.8
20.8
21.4
19.5
8.8
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
-13.0
3QFY15
2QFY15
1QFY15
4QFY14
-4.0 -2.0 -3.0 -2.5 -4.0
3QFY14
1QFY14
4QFY13
3QFY13
2QFY13
1QFY13
4QFY12
3QFY12
-2.0
3QFY12
1.5 0.5 1.5 2.5
2QFY14
5.0 5.0
Source: MOSL, Company
2
ITC
Exhibit 7: Incremental EBIT margins of 0.5%
11631
11787
1QFY14
2QFY14
2,363
3QFY1511988
10575
4QFY13
12841
10616
3QFY13
12885
10590
2QFY13
1QFY15
10587
1QFY13
12612
9799
4QFY12
36.0
29.8
Source: Company, MOSL
3QFY15
18.2
2QFY15
4QFY14
3QFY14
1QFY14
4QFY13
3QFY13
23.1
22.8 20.7 21.9
21.4 22.7
2QFY14
28.3
2QFY13
25.4
1QFY13
20.6
4QFY12
3QFY12
3QFY15
2QFY15
1QFY15
4QFY14
3QFY14
Exhibit 11: Agri revenues remain volatile
18.4
Exhibit 12: Hotel EBIT declined 54%
18.9 17.8
Source: MOSL, Company
14.5 14.9
7.3 6.1
2QFY14
4QFY14
9784
3QFY12
14.9
3QFY14 12574
17.8
Agri contri to ITC sales
11.5
9.1
1QFY14
4QFY13
3QFY13
2QFY13
6.9
1QFY13
4QFY12
3QFY12
7.5
10.6
21.3
18.7 18.4
2QFY15
21.6
1QFY15
Exhibit 10: Agri margins expanded due to mix improvement
10.1
3QFY15
EBIT Margins (%)
Source: MOSL, Company
12.8
2,338
4,120
Sales (INR m)
26.7
25.0
21.5
115
(103)
(156)
431
(127)
(189)
104
119
(240)
(303)
(388)
(167)
(468)
EBIT (INR m)
EBIT Margins (%)
16.1
2QFY15
2,720
1QFY13
3QFY15
22.9
20.0
12.4
1QFY15
3,017
4QFY12
Source: MOSL, Company
Exhibit 9: Paper revenues decline due to macro slowdown
2QFY15
1QFY15
4QFY14
3QFY14
2QFY14
1QFY14
4QFY13
3QFY13
2QFY13
1QFY13
4QFY12
3QFY12
Exhibit 8: FMCG-others posted EBIT of INR115m
2,783
2,665
3QFY12
Source: MOSL, Company
1.8 1.0
0.5
4QFY14
11.4
3QFY15
2,951
11.9
2QFY15
3QFY14
10.9
1QFY15
2QFY14 2,714
13.7
4QFY14
6.8 7.3 6.5
2,716
16.6
3QFY14
3QFY13
16.1
2QFY14
11.6 11.2
5.5
2QFY13 3,455
18.4
7.4
1QFY14
26.0
10.0
Incr EBIT Margin (%)
1,900
Incr Sales (INR m)
1QFY14
17.0
13.8
4QFY13
30.1
3QFY13
25.7
22.6
1QFY13
2QFY13
22.9
4QFY12
3QFY12
24.1
Sales Growth (%)
4QFY13 4,197
Exhibit 6: FMCG-others posted sales growth of 11.4%
Source: Company, MOSL
Exhibit 13: ..while revenues up muted 5.9% YoY
Sales (INR m)
EBIT Margins (%)
EBIT (INR m)
Source: MOSL, Company
21 January 2015
4QFY14
3QFY14
2QFY14
1QFY14
4QFY13
3QFY13
2QFY13
1QFY13
4QFY12
3QFY12
3QFY15
2QFY15
1QFY15
4QFY14
3QFY14
2QFY14
1QFY14
4QFY13
3QFY13
2QFY13
1QFY13
4QFY12
3QFY12
-4.9 -3.7
3,303
287
8.7
3.6 3.5
3QFY15
7.1
19.7 18.7
12.9
2,616
17.9
2QFY15(96)
11.3
1QFY15
(121)
29.0
2,787
1,017
2,858
829
2,324
262
2,170
153
3,095
555
3,155
406
2,499
89
2,470
87
3,154
622
3,205
599
2,487
36.5
Source: MOSL, Company
3
ITC
Below estimates on all counts



ITC posted muted revenue growth (2.5% YoY) to INR89.4b (est. INR96.9b), with
flattish sales growth (0.6%) for Cigarettes and 11.4% growth in Non-Cig FMCG.
Hotels business posted 4.7% sales growth while Agri Business and Paper
business declined 10.6% and 4.7% respectively.
Cigarette volumes declined ~12-13% but margins expanded 520bp to 69.7% due
to price hikes and mix improvement.
Gross margins improved by 50bp largely led by price hikes in Cigarettes
business. EBITDA grew 5.5% YoY to INR34.6b (est. INR37b) and Adj. PAT
increased 10.5% YoY to INR26.4b (est. INR27.5b). Other income expanded 49%
and drove the PAT growth.
Cigarette volumes decline ~12-13%; 520bp EBIT margin expansion





Cigarette volumes declined 12-13%; multi-year low: This double digit volume
decline was owing to several factors. 3Q15 saw the full impact of 18% excise
duty increase taken in interim budget in July’14. This resulted in another round
of price hikes (cumulative ~20% price hike on wtd average basis). This was
exacerbated by VAT increases in Tamil Nadu (largest Cig market for ITC), Kerala
and Assam. Together these 3 markets contribute 30% of ITC’s Cig volumes. Due
to three consecutive years of 15%+ excise increase and consequent price
increases by ITC, Cig volumes have remained under pressure post FY12.
Cigarette EBIT grew 8.8% and posted 520bp margin expansion to 69.7% (19th
consecutive quarter of margin exp) on the back of price increases. However,
EBIT growth was the lowest since 1QFY09.
Recent policy action on Cigarettes hasn’t helped either. Government is
proposing to ban sale of loose stick cigarettes along with other punitive
measures like a) Raising the minimum legal age for buying Tobacco from 18 to
21 years. b) Raising the fine for smoking in public places from INR 200 to INR
1000. C) Recommends removal of designated smoking zones in hotels and
restaurants. D) Larger graphic health warnings covering 85% of the surface area
of both sides of the pack as compared to the current requirement of covering
40% of the area of one side of the pack. We expect more clarity to emerge on
this in the forthcoming budget session of parliament.
We have revised our Cig volume decline assumption in FY15 to 7.5%.
Our channel checks suggest week on week Cig volume decline has been
arrested.
FMCG: Yet to see recovery


21 January 2015
FMCG sales grew 11.4% to INR23.1b (volume growth of 7-8%) and reported EBIT
of INR115m. We note that FMCG –Others segment has slowed considerably in
past 5-6 quarter given the weak consumption demand and macro environment.
We expect ITC to take price cuts to pass on the benefits of commodity cost
correction.
Within the FMCG –Others portfolio - Snacks, Noodles and Personal Care
(personal wash and deodorants) outperformed while Biscuits remained sluggish.
ITC likely gained some market share in Biscuits from Britannia, per our channel
checks.
4
ITC


Sunfeast Yippie (Instant Noodles and pasta category) and Aashirvaad atta
continued to gain traction and increased market share.
The company has launched ‘Sunfeast Yumfills Whoopie pie’ (a premium
chocolate enrobed cake) and Sunfeast Mom’s magic (premium cookies) in select
markets.
Agri business: As volatile as every; revenues decline 10.6%


Agri Business sales declined by 10.6% YoY to INR16b due to absence of trading
opportunities in Soya while margins expanded 340bp led by improvement in mix
(higher sakes of Leaf Tobacco).
The company has not done any trading in soya during 3QFY15 due to bumper
production in USA, Brazil and Argentina.
Hotels: Sequential improvement in EBIT


Hotel revenues grew 4.7% YoY at INR3.3b, impacted by weak macro
environment and pricing environment.
EBIT margins contracted 1100bp due to higher depreciation costs led by revision
in useful life of fixed assets on account of new Companies Act 2013. The
segment reported EBIT of INR287m vs. loss of 96m in 2Q.
Paper: Topline is still soft and is a function of macro recovery


21 January 2015
Paper and Paperboard business sales declined 4.7% YoY to INR12b impacted by
the slowdown in the FMCG and cigarette industry and shutdown of a
manufacturing unit of Nokia in Chennai.
EBIT declined 7.7% YoY to INR2.1b while EBIT margin contracted 60bp YoY to
17.8%.
5
ITC
Exhibit 14: Segmental performance
1QFY13 2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14 1QFY15 2QFY15 3QFY15
Sales (INR m)
Cigarettes
FMCG - Others
Hotels
Agri business
Paper and packaging
33,042
14,731
2,324
16,914
10,587
33,852
16,908
2,170
20,239
10,590
36,574
17,827
3,095
16,310
10,616
36,232
20,362
3,155
18,545
10,575
35,374
17,447
2,499
21,890
11,631
37,238
19,622
2,470
17,725
11,787
41,161
20,778
3,154
17,864
12,574
40,788
23,145
3,205
20,042
12,612
42,011
19,346
2,487
32,961
12,885
42,509
21,960
2,616
20,587
12,841
41,419
23,141
3,303
15,979
11,988
Sales growth (YoY)
Cigarettes
FMCG - Others
Hotels
Agri business
Paper and packaging
15.0
23.0
0.8
-0.9
10.3
14.0
26.1
2.8
41.1
5.3
13.1
30.1
11.0
43.1
8.5
11.5
26.0
10.4
31.1
7.9
7.1
18.4
7.5
29.4
9.9
10.0
16.1
13.8
-12.4
11.3
12.5
16.6
1.9
9.5
18.5
12.6
13.7
1.6
8.1
19.3
18.8
10.9
-0.5
50.6
10.8
14.2
11.9
5.9
16.1
8.9
0.6
11.4
4.7
-10.6
-4.7
Volume growth (YoY)
Cigarettes
1.5
0.5
1.5
2.5
-2.0
-2.0
-2.0
-3.0
-2.5
-4.0
-13.0
EBIT (INR m)
Cigarettes
FMCG - Others
Hotels
Agri business
Paper and packaging
18,998
-388
262
1,714
2,647
20,802
-303
153
2,597
2,825
22,335
-240
555
1,726
2,286
21,124
119
406
1,275
1,881
22,417
-189
89
1,993
2,516
24,117
-127
87
2,846
2,208
26,526
104
622
2,054
2,317
25,519
431
599
1,455
1,884
27,218
-156
-121
2,025
2,749
28,821
-103
-96
2,983
2,421
28,863
115
287
2,388
2,139
EBIT growth (YoY)
Cigarettes
FMCG - Others
Hotels
Agri business
Paper and packaging
20.5
-49.1
-48.9
9.1
16.6
20.3
-45.8
-64.8
8.8
-2.5
21.1
-48.8
-45.5
21.9
1.9
20.2
-171.2
-51.0
20.8
-3.9
18.0
-51.3
-65.9
16.3
-5.0
15.9
-58.1
-43.0
9.6
-21.9
18.8
-143.2
12.1
19.0
1.4
20.8
263.0
47.3
14.1
0.1
21.4
-17.6
-235.2
1.6
9.3
19.5
-18.8
-209.9
4.8
9.7
8.8
10.7
-53.8
16.3
-7.7
EBIT Margin (%)
Cigarettes
FMCG - Others
Hotels
Agri business
Paper and packaging
57.5
-2.6
11.3
10.1
25.0
61.4
-1.8
7.1
12.8
26.7
61.1
-1.3
17.9
10.6
21.5
58.3
0.6
12.9
6.9
17.8
63.4
-1.1
3.6
9.1
21.6
64.8
-0.6
3.5
16.1
18.7
64.4
0.5
19.7
11.5
18.4
62.6
1.9
18.7
7.3
14.9
64.8
67.8
69.7
-0.8
-0.5
0.5
-4.9
-3.7
8.7
6.1
14.5
14.9
21.3
18.9
17.8
Source: Company, MOSL
Valuation and view




21 January 2015
Cigarette segment posted one of its worst performances in recent times on both
volume and EBIT growth front. We have cut our FY15-17E estimates by 3-4% to
bake in lower than expected Cig volume growth. The double digit volume
decline is an aberration in our view and does not set a new normal. We are now
building in 7.5% volume decline in FY15E.
ITC’s underperformance is primarily to do with overhang around policy actions
contemplated by government and also the muted Cig volume growth delivery.
After underperformance of last 18 months vis-à-vis sector, valuations at 30%
discount to sector, largely discounts the negatives related to policy action, in our
view. At 25x FY16E and 21.6x FY17E EPS, it trades at lowest P/E in our coverage
universe.
While we remain bullish on ITC given the relative attractive valuations, we
expect near term underperformance to continue owing to a) Recent policy
action (ban on loose sticks etc) and b) Speculation on potential excise duty
6
ITC
increase in budget. We maintain a Buy with a TP of INR420 (26x FY16E EPS, 20%
discount to HUVR).
Exhibit 15: Revised numbers by 3-4% to incorporate 3QFY15 miss
Exhibit 16: ITC P/E (x): Valuations at long term averages
24.0
22.9
Jan-15
Oct-13
Jul-12
Jan-10
Jan-15
Oct-13
Jul-12
Apr-11
Jan-10
Oct-08
Jul-07
Source: Bloomberg, Company, MOSL
Apr-11
-50
7.0
Apr-06
52.5
0
13.9
Jan-05
47.4
50
Oct-08
15.0
LPA (%)
100
22.9
23.0
Change (%)
FY15E
FY16E
FY17E
-3.6
-4.8
-5.0
-2.8
-4.7
-3.9
-2.7
-4.5
-3.7
Source: Company, MOSL
FY17E
495,610
187,907
135,078
ITC PE Relative to Sensex PE (%)
150
30.9
31.0
Old
FY16E
434,393
164,050
117,409
Exhibit 17: P/E trades in line with Sensex
Avg(x)
Apr-06
39.0
Peak(x)
Min(x)
FY15E
378,608
141,759
100,740
Jan-05
PE (x)
Median(x)
FY17E
470,657
180,639
130,036
Jul-07
Sales
EBITDA
PAT
New
FY16E
413,447
156,375
112,139
FY15E
364,976
137,723
97,994
Source: Bloomberg, Company, MOSL
Exhibit 18: ITC trades at ~30% discount to our coverage
Company
Asian Paints
Nestle
Pidilite
Britannia
Hindustan
Unilever
Colgate
Emami
GSK Consumer
Dabur
Marico
Godrej
Consumer
ITC
21 January 2015
P/E
FY16E FY17E
46.0
38.5
46.3
39.1
44.6
36.7
40.2
32.5
Earnings
Growth
FY14-17E
20%
14%
20%
22%
Peak
P/E
10 yr
39.2
44.2
40.4
40.7
1 yr
34.8
39.5
30.8
28.0
Avg P/E
3 yr 5 yr
33.7 30.7
39.7 37.5
26.0 23.7
23.5 25.2
10 yr
24.7
30.9
20.3
23.1
Relative P/E to
Sensex (%)
FY16E
FY17E
195
196
197
201
186
183
157
150
Avg P/E relative to Sensex (%)
1 yr
3 yr
5 yr
10 yr
118
125
97
56
147
165
141
96
93
74
52
29
75
57
62
46
44.6
36.9
36.6
34.1
35.5
33.3
37.6
30.0
30.3
29.3
30.1
28.5
14%
21%
17%
17%
17%
15%
39.3
43.3
36.8
38.4
37.6
32.9
34.1
34.4
27.8
31.9
31.9
27.6
32.4
34.2
24.6
28.0
28.3
27.1
29.6
31.2
24.2
26.3
27.8
26.8
27.5
26.3
20.0
20.5
25.5
23.2
186
137
135
119
127
114
189
131
133
126
132
119
114
115
74
100
100
73
32.1
25.0
26.9
21.6
23%
14%
38.5
30.9
30.1
26.7
31.9
27.2
28.6
25.3
23.8
22.8
106
60
107
66
89
67
117
129
65
87
89
81
90
100
55
69
79
72
74
66
27
30
62
47
113
84
51
82
63
45
Source: Company, MOSL
7
ITC
Story in charts
Exhibit 19: Volume growth of -13% in 3Q
Exhibit 20: Sales CAGR of 13.5% over FY15-17E
Sales (INR b)
Volume growth (%)
Sales growth (%)
19.4
16.6
17.2
182
212
248
296
329
365
413
FY15E
FY16E
13.3
16.3
FY14
-4.0
FY13
-2.5
-0.3
FY12
-2.8
FY11
-2.9
7.6
FY10
7.2
3.3
11.0
11.1
13.8
Source: Company, MOSL
Exhibit 21: EBITDA margins were up 140bps YoY in FY14
57.0
37.9
58.4
57.7
37.8
37.7
Exhibit 22: PAT CAGR of 15.2% over FY15-17E
PAT (INR b)
59.6
38.4
24.8
25.1
PAT Margin (%)
27.1
26.8
26.7
27.6
23.6
40.7
49.9
61.6
74.2
87.9
98.0
112.1
130.0
FY10
FY11
FY12
FY13
FY14
FY15E
FY16E
FY17E
FY17E
22.4
FY16E
36.0
Source: Company, MOSL
EBITDA Margin (%)
FY15E
35.8
55.6
FY13
35.0
FY11
FY10
34.9
FY12
57.3
58.6
FY14
Gross Margin (%)
471
FY17E
3QFY15E
2QFY15
1QFY15
FY14
FY13
FY12
FY11
FY10
FY09
-13.0
Source: Company, MOSL
Source: Company, MOSL
Exhibit 23: Operating Performance Metrics
Volume growth (%)
Sales (INR b)
Sales growth (%)
Gross Margin (%)
EBITDA Margin (%)
PAT (INR b)
PAT Margin (%)
Net Working Capital as a % of sales
RoE (%)
Dividend payout ratio
21 January 2015
FY10
7.6
182
16.3
61.3
34.9
40.7
22.4
-5.8
28.9
109.4
FY11
-0.9
212
16.6
57.3
35.0
49.9
23.6
-2.9
31.3
80.2
FY12
6.4
248
17.2
58.6
35.8
61.6
24.8
-3.1
32.8
66.4
FY13
1.5
296
19.4
55.6
36.0
74.2
25.1
0.6
33.3
65.4
FY14
-2.8
329
11.1
57.0
37.9
87.9
26.7
3.6
33.5
63.5
FY15E
-7.5
365
11.0
57.7
37.7
98.0
26.8
0.7
34.5
78.4
FY16E
FY17E
0.0
3.0
413
471
13.3
13.8
58.4
59.6
37.8
38.4
112.1
130.0
27.1
27.6
-2.2
-3.6
36.9
39.7
81.9
81.9
Source: Company, MOSL
8
ITC
Corporate profile: ITC
Company description
Exhibit 24: Sensex rebased
ITC is an associate of BAT (British American
Tobacco) controls more than 2/3rd of the cigarette
market in India. ITC has emerged as a diversified
conglomerate
with
leading
presence
in
Paperboards, Hotels and Processed foods. EChoupal, the agri rural initiative of the company
has been widely appreciated for its foresight in
harnessing the potential in the rural market.
Exhibit 25: Shareholding pattern (%)
Exhibit 26: Top holders
Dec-14
Sep-14
Dec-13
Promoter
0.0
0.0
0.0
DII
34.8
34.8
34.3
FII
21.0
20.5
19.5
Others
44.2
44.6
46.1
Note: FII Includes depository receipts
Exhibit 27: Top management
Name
Holder Name
% Holding
Tobacco Manufacturers India Ltd
LIC of India
Specified Undertaking Of the Unit Trust Of India
Myddleton Investment Company Ltd
New India Assurance Company Ltd
24.8
14.5
11.2
4.1
1.9
Exhibit 28: Directors
Designation
Name
Name
Yogesh Chander Deveshwar
Chairman
Yogesh Chander Deveshwar
Kurush Noshir Grant
Biswa Behari Chatterjee
Executive VP & CS
Anil Baijal*
Krishnamoorthy Vaidyanath
S S H Rehman*
Biswa Behari Chatterjee
Meera Shankar*
Anthony Ruys
Serajul Haq Khan*
Nakul Anand
Sunil Behari Mathur*
Pradeep Vasant Dhobale
Angara Venkata Girija Kumar*
S B Mainak
Pillappakkam Bahukutumbi
Ramanujam*
Kurush Noshir Grant
R E Lerwill*
*Independent
Exhibit 29: Auditors
Exhibit 30: MOSL forecast v/s consensus
Name
Type
Deloitte Haskins & Sells
P Raju Iyer
S Mahadevan & Co
Shome & Banerjee
Statutory
Cost Auditor
Cost Auditor
Cost Auditor
21 January 2015
EPS (INR)
MOSL forecast
FY15
FY16
FY17
12.3
14.1
16.4
Consensus
forecast
12.6
14.7
17.3
Variation (%)
-2.4
-4.3
-5.1
9
ITC
Financials and valuations
Income Statement
Y/E March
Net Sales
Operational Income
Total Revenue
Change (%)
Total Expenditure
EBITDA
Change (%)
Margin (%)
Depreciation
Int. and Fin. Charges
Other Inc. - Recurring
Profit before Taxes
Change (%)
Margin (%)
Tax
Deferred Tax
Tax Rate (%)
Profit after Taxes
Change (%)
Margin (%)
Reported PAT
(INR Million)
2017E
470,657
5,761
476,418
13.9
295,778
180,639
15.5
38.4
11,846
442
19,292
187,643
16.0
39.9
57,231
375
30.7
130,036
16.0
27.6
130,036
2010
181,532
2,392
183,924
16.4
120,619
63,305
24.8
34.9
6,087
820
3,756
60,153
24.7
33.1
20,286
-822
35.1
40,689
24.7
22.4
40,689
2011
211,676
2,914
214,590
16.7
140,467
74,123
17.1
35.0
6,560
679
5,798
72,682
20.8
34.3
22,804
2
31.4
49,876
22.6
23.6
49,876
2012
247,984
3,490
251,475
17.2
162,788
88,687
19.6
35.8
6,985
980
8,253
88,975
22.4
35.9
26,777
574
29.4
61,624
23.6
24.8
61,624
2013
296,056
2,957
299,013
18.9
192,543
106,470
20.1
36.0
7,956
1,059
9,387
106,842
20.1
36.1
29,348
3,310
24.4
74,184
20.4
25.1
74,184
2014
328,826
3,560
332,386
11.2
207,631
124,755
17.2
37.9
8,999
236
11,071
126,591
18.5
38.5
37,911
828
29.3
87,852
18.4
26.7
87,852
2015E
364,976
4,553
369,528
11.2
231,805
137,723
10.4
37.7
9,886
546
14,114
141,405
11.7
38.7
43,129
283
30.7
97,994
11.5
26.8
97,994
2016E
413,447
5,009
418,456
13.2
262,080
156,375
13.5
37.8
10,866
492
16,799
161,817
14.4
39.1
49,354
324
30.7
112,139
14.4
27.1
112,139
Y/E March
Share Capital
Reserves
Net Worth
Loans
Deferred Liability
Capital Employed
2010
3,818
136,826
140,644
1,077
7,850
149,571
2011
7,738
151,795
159,533
1,093
8,019
168,645
2012
7,818
180,101
187,919
791
8,727
197,437
2013
7,902
214,977
222,879
664
12,037
235,580
2014
7,953
254,667
262,620
511
12,970
276,101
2015E
7,953
275,843
283,797
511
12,335
296,643
2016E
7,953
296,141
304,094
511
11,625
316,230
(INR Million)
2017E
7,953
319,677
327,630
511
10,827
338,969
Gross Block
Less: Accum. Depn.
Net Fixed Assets
Capital WIP
Investments
119,679
38,255
81,424
10,090
57,269
127,658
44,208
83,451
13,334
55,547
138,033
48,197
89,837
23,923
63,166
165,884
54,698
111,186
15,786
70,603
181,756
62,269
119,487
23,598
88,234
201,756
72,155
129,601
25,000
97,552
221,756
83,021
138,735
25,000
107,770
241,756
94,867
146,889
25,000
122,630
Curr. Assets, L&A
Inventory
Account Receivables
Cash and Bank Balance
Others
Curr. Liab. and Prov.
Account Payables
Other Liabilities
Provisions
Net Current Assets
Application of Funds
E: MOSL Estimates
81,279
45,491
8,581
11,263
15,945
80,491
34,449
7,860
38,182
788
149,571
97,901
52,692
8,851
22,432
13,926
81,588
39,792
7,362
34,435
16,313
168,644
112,957
56,378
9,824
28,189
18,565
92,445
46,989
10,273
35,183
20,512
197,437
142,600
66,002
11,633
36,150
28,815
104,595
50,571
12,540
41,485
38,006
235,580
160,975
73,595
21,654
32,894
32,832
116,193
54,498
13,976
47,719
44,782
276,101
187,668
95,169
21,999
41,972
28,528
143,178
63,229
14,294
65,656
44,490
296,643
213,261
105,987
22,655
53,748
30,871
168,536
73,248
16,790
78,497
44,725
316,230
239,164
118,693
25,789
61,185
33,497
194,714
84,425
19,264
91,025
44,450
338,969
Balance Sheet
21 January 2015
10
ITC
Financials and valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout %
2010
2011
2012
2013
2014
2015E
2016E
2017E
10.7
12.3
36.8
10.0
109.4
6.4
7.3
20.6
4.5
80.2
7.9
8.8
24.0
4.5
66.4
9.4
10.4
28.2
5.3
65.4
11.0
12.2
33.0
6.0
63.5
12.3
13.6
35.7
8.3
78.4
14.1
15.5
38.2
9.9
81.9
16.4
17.8
41.2
11.4
81.9
Valuation (x)
P/E
Cash P/E
EV/Sales
EV/EBITDA
P/BV
Dividend Yield (%)
33.1
28.5
14.8
42.5
9.6
2.8
54.8
48.4
12.7
36.2
17.1
1.3
44.8
40.2
10.8
30.1
14.7
1.3
37.6
34.0
9.0
24.9
12.5
1.5
32.0
29.0
8.0
21.2
10.7
1.7
28.6
26.0
7.2
19.0
9.9
2.3
25.0
22.8
6.3
16.6
9.2
2.8
21.6
19.8
5.5
14.3
8.6
3.2
Return Ratios (%)
RoE
RoCE
28.9
40.8
31.3
43.5
32.8
45.6
33.3
45.8
33.5
45.9
34.5
47.9
36.9
51.3
39.7
55.5
Working Capital Ratios
Debtor (Days)
Asset Turnover (x)
15
1.2
15
1.3
14
1.3
13
1.3
18
1.2
22
1.2
20
1.3
19
1.4
Leverage Ratio
Debt/Equity (x)
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
2010
60,153
3,756
6,087
820
19,464
-6,956
700
51,497
2011
72,682
5,798
6,560
679
22,806
-438
607
52,362
2012
88,975
8,253
6,985
980
27,352
-114
2,996
64,445
2013
106,842
9,387
7,956
1,059
32,658
16,494
1,454
58,771
2014
126,591
11,071
8,999
236
38,739
22,551
1,428
64,893
2015E
141,405
14,114
9,886
546
43,411
-53
0
94,365
2016E
161,817
16,799
10,866
492
49,678
-1,322
0
108,020
2017E
187,643
19,292
11,846
442
57,606
7,148
0
115,885
Extraordinary Items
Incr Decr in FA
Pur of Investments
CF from Invest.
0
12,041
28,891
-40,933
0
11,224
-1,722
-9,502
1
20,964
7,619
-28,582
2
19,714
7,437
-27,149
3
23,684
17,631
-41,313
0
21,402
9,318
-30,720
0
20,000
10,218
-30,218
0
20,000
14,860
-34,860
Issue of shares
Incr in Debt
Interest Income
Interest Paid
Dividend Paid
Others
CF from Fin. Activity
7,207
-698
3,756
820
13,965
-5,091
-9,612
5,220
16
5,798
679
38,182
-3,864
-31,691
7,650
-303
8,253
980
34,435
-10,292
-30,106
9,223
-127
9,387
1,059
35,183
-5,903
-23,662
6,911
-153
11,071
236
41,485
-2,946
-26,837
0
0
14,114
546
47,719
-20,415
-54,567
0
0
16,799
492
65,656
-16,677
-66,025
0
0
19,292
442
78,497
-13,940
-73,588
Incr of Cash
Add: Opening Balance
Closing Balance
953
10,310
11,263
11,170
11,263
22,433
5,757
22,432
28,189
7,961
28,189
36,150
-3,257
36,150
32,893
9,079
32,894
41,973
11,776
41,972
53,749
7,437
53,748
61,186
(INR Million)
Cash Flow Statement
Y/E March
OP/(loss) before Tax
Int./Div. Received
Depreciation and Amort.
Interest Paid
Direct Taxes Paid
Incr in WC
Diff in dep
CF from Operations
21 January 2015
11
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United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or
intended for U.S. persons.
This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional
investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major
institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the
"Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning
agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this
chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL,
and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.
For Singapore
Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors
Regulations and is a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to
accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.
In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Anosh Koppikar
Kadambari Balachandran
Email : anosh.Koppikar@motilaloswal.com
Email : kadambari.balachandran@motilaloswal.com
Contact : (+65)68189232
Contact : (+65) 68189233 / 65249115
Office Address : 21 (Suite 31),16 Collyer Quay,Singapore 04931
Motilal Oswal Securities Ltd
21 January 2015
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
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