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ITC Ltd. - Q2FY14 Result Update - "BUY"




Kisan Ratilal Choksey Shares and Securities Private Limited


01 Nov 2013





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ITC Ltd. - Q2FY14 Result Update CMP: Rs 330 Target Price: Rs 388 Recommendation: BUY “Price hike the savior” FMCG major ITC reported good set of numbers with Net sales up by 8.8% y-o-y to Rs.7776 crores, on the back of price hike taken up by the company in the Cigarette business, which reported a growth of 10% y-o-y. FMCG business increased by 16% y-o-y followed by Hotel and Paperboards businesses which grew by 13.8% y-o-y and by 11.3% y-o-y respectively. EBITDA was up by 18% y-o-y to Rs.3176 crores. Operating margins improved by 319bps y-o-y to 40.4%, on account of softening of commodity prices and better product mix. Net profit increased by 21.5% y-o-y to Rs.2231 crores on the back of higher other income (up 33%YoY). Cigarette business fared well: ITC the major tobacco player, reported growth of 10% y-o-y and 5.3% q-o-q to Rs.3724crs in its Cigarette business, mainly on account of price hike taken by the company which was partially offset by decrease in volumes. Total revenues of the company were up by 8.8% y-o-y and by 6% q-o-q to Rs.7776crs. Non-cigarette business contributed to around 60% of the total sales. Agri business the other major revenue contributor after Cigarette business was down by 12.4% y-o-y and by 19% q-o-q basis. FMCG Others reported growth of 16% y-o-y & 12.5% q-o-q. ITC is the market leader in Paperboard segment which increased by 11.3% y-o-y and marginally up by 1.3% sequentially. Improvement on Margins front: EBITDA grew by 18% y-o-y and by 13.8% q-o-q to Rs. 3176crs on the back of lower raw material costs and other expenditure. Operating margins improved by 319bps y-o-y and by 273bps q-o-q to 40.4%. The major contributor to the margins was Cigarette business both on y-o-y & q-o-q basis because of the price hike taken up by the company followed by Agri-business. FMCG Others was in the negative zone and even profit from Paperboards, Paper & packing business did report depressing numbers. FMCG others is expected to breakeven at the start of next fiscal year. Net Profit reported attractive numbers: Net profit was up by 21.5% y-o-y and by 17.9% on q-o-q basis to Rs.2231crs on the back of higher other income (up 33%y-o-y). Margins were up by 296bps y-o-y and by 285bps q-o-q to 28.4% due to overall improvement in Operating margins. Valuations & Views: We expect ITC to deliver revenue growth of 18% and 20% in FY14 & FY15 respectively driven by superior product mix & leadership position in the core business and continued investments behind brands & distribution network. At the CMP of Rs.330 per share ITC is available at a PE of 31.7xFY14E & 26.4xFY15E. We recommend Buy rating on the stock, with a target price of Rs. 388, a potential upside of 17%.

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