Itc LTD (Itc) : GST Implementation To Aid Volume Growth
Itc LTD (Itc) : GST Implementation To Aid Volume Growth
Raw Material Expenses 4,682.8 4,053.1 3,567.2 31.3 3,376.6 38.7 Raw material grew significantly on account of a sharp increase in wheat,
sugar, maida, etc
Employee Expenses 571.4 626.7 554.7 3.0 572.3 -0.2
Excise Duty 3,883.3 4,023.4 4,382.1 -11.4 4,321.6 -10.1 Excise duty declined 11.4% YoY largely on account of a change in sales mix
towards the 64 mm cigarettes (~32% of total cigarette volume against
~20% in same quarter last year)
Other operating Expenses 1,996.0 2,011.2 2,029.8 -1.7 1,753.1 13.9
EBITDA 3,875.4 3,982.0 3,605.1 7.5 3,546.4 9.3 EBITDA grew 7.5% YoY in line with sales growth
EBITDA Margin (%) 25.8 27.1 25.5 32 bps 26.1 -31 bps
Depreciation 241.8 282.7 246.5 -1.9 266.5 -9.3
Interest -11.5 11.1 12.3 -193.4 13.6 -184.3
Other Income 402.1 399.7 371.2 8.3 687.9 -41.6
Change in estimates
FY18E FY19E
(| Crore) Old New % Change Old New % Change Comments
Sales 58393.9 59796.4 2.4 65947.0 67278.1 2.0 Revised cigarette volumes upward
EBITDA 16895.8 17245.5 2.1 18279.0 19490.8 6.6
EBITDA Margin (%) 28.7 28.6 -11 bps 27.5 28.7 121 bps
PAT 11567.2 12508.2 8.1 12531.3 14135.0 12.8
EPS (|) 9.6 10.3 7.3 10.4 11.6 11.9
Source: Company, ICICIdirect.com Research
Assumptions
Current Earlier Comments
FY16E FY17E FY18E FY19E FY18E FY19E
Cigarettes (| cr) 32,348.3 34,002.0 37,129.4 42,474.1 36,338.7 41,918.3 We have revised our cigarette volume upwards considering the
clarity on the GST rate
Cigarette Vol. Growth (%) -10.0 2.0 4.0 4.0 3.0 3.0
Cigarette Price Growth (%) 12.0 3.0 5.0 10.0 3.0 12.0
FMCG - Others (| cr) 9,731.2 10,511.8 11,750.5 13,247.8 11,732.7 13,227.8
Hotels (| cr) 1,286.2 1,341.7 1,487.8 1,537.5 1,487.8 1,524.0
Agri Business (| cr) 7,456.9 8,264.6 8,882.8 9,590.8 8,769.7 9,466.3
Paperboards (| cr) 5,327.7 5,362.9 5,803.7 6,027.1 5,793.5 6,016.5
Source: Company, ICICIdirect.com Research
Over the past five years, the excise duty and VAT on cigarettes have gone
up cumulatively by 131% and 157%, respectively, hurting the volume
growth for the company as every hike is passed on by way of gradual
price hikes. Now, with GST implementation around the corner, and clarity
on the GST rate and cess, we believe the cigarette industry should
witness volume growth. As per our calculation, the change in the ‘tax on
tax’ structure may lead to a significant jump in the EBITDA (roughly ~ |
4000 crore) that would be passed on to customers through ~7-8% price
cut, considering the anti-profiteering law. Though this could be a huge
volume booster, we will await clarity on the same because it looks very
unlikely to us given the tax revenue loss for the government. We factor in
4.0% volume CAGR and 7.5% realisation CAGR in FY17-19E.
Exhibit 1: Cigarette revenues, revenue growth (YoY) Exhibit 2: Cigarette volume growth (YoY)
40000 20 8
16.8
6
14.3 14.7 14.4
30000 15 4
12.2 11.9 2
9.2 0
20000 10
6.2 -2 FY09 FY10 FY11 FY12E FY13E FY14E FY15E FY16E FY17E FY18E FY19E
4.7 5.1 -4
10000 5 -6
-8
0 0 -10
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E -12
Cigarette Revenues (| crore) - LHS Cigarette revenue Growth (%) Volume growth (%)
14000 25
19.8 20.5 20.3
12000 18.0
16.8 20
10000 15.1
8000 11.8 12.5 15
6000 10
6.5
4000 5.0 4.9
5
2000
0 0
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E
Despite growing at a healthy pace, the FMCG business has been able to
achieve breakeven in FY15 since inception (2001) led by entry into new
segments, year after year. However, losses have declined much faster
than anticipated from | 483.5 crore (FY09) to | 81.3 crore (FY13) with
marginal profit at | 28.12 crore in FY17, which we estimate to grow to
| 272.6 crore in FY19E. With the company’s brands gaining strength
across segments and operational efficiency (back-end integration with
ITC’s agri business and paperboards business) yielding positive results,
we expect the FMCG business to increasingly contribute to profits in a
staggered manner in FY18E-19E.
Exhibit 6: Hotel revenues (| crore) and growth (%) Exhibit 7: Hotel EBIT (| crore)
Exhibit 8: Paperboards revenues (| crore) and growth (%) Exhibit 9: Paperboards EBIT (| crore)
400 9 12 345
44 7
5
350 269
300
250
200
150
100
50
0
Cigarettes FMCG Paper Agri Hotels Cash per share SOTP
250 50.0
(%)
40.0
30.0
20.0
10.0
150 0.0
May-15 Jul-15 Oct-15 Dec-15 Mar-16 May-16 Aug-16 Oct-16 Dec-16 Mar-17 May-17
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
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