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Recommendations India

ITC 4QFY2014 performance highlights and results update

June 2, 2014, Monday, 05:49 GMT | 01:49 EST | 10:19 IST | 12:49 SGT
Contributed by Angel Broking

For 4QFY2014, ITC’s performance was in-line with our estimates on the bottomline front, with the Cigarettes business posting a strong 20.8% yoy growth in EBIT. The company’s other FMCG business turned profitable for the first time on an annual basis in FY2014.

Key highlights: ITC’s net sales rose by 11.8% yoy to Rs.9,145cr. The Cigarettes business posted a 12.6% yoy growth in net sales to Rs.4,079cr, aided by price hikes, even as volumes are expected to have de-grown by ~2%. Healthy realizations resulted in the Cigarettes business posting a 20.8% yoy growth in its EBIT. The other FMCG business, which posted a 13.7% yoy growth in net sales to Rs.2,316cr, posted an EBIT of Rs.43cr. The Agri business posted an 8.1% yoy and 14.1% yoy growth in revenue and segmental EBIT respectively. Although the Paperboards and Packaging division posted a 19.3% yoy growth in revenue, the segment’s EBIT remained flat on a yoy basis, impacted by steep increase in wood, coal and chemical costs. While the Hotels business posted a flat performance on the top-line front, its EBIT rose by 47.3% yoy. Overall, the company’s OPM rose by 187bp yoy to 34%, aided by higher gross margins (up 106bp yoy) and lower other expenses as a % of sales.

Outlook and valuation: We expect ITC to report a top-line and bottom-line CAGR of 15.2% and 13.9% respectively over FY2014-16E. At the current market price, the stock is trading at 23.4x FY2016E EPS. We recommend an Accumulate on the stock with a target price of Rs.382.