INSTITUTIONAL EQUITY RESEARCH
Page | 1 | PHILLIPCAPITAL INDIA RESEARCH
ITC Limited (ITC IN)
GST disruptive but manageable
INDIA | FMCG | Company Update
7 September 2016
This report should be read for:
Impact of GST implementation (starting FY18) on ITC
Volume, price and profit growth sensitivity under different tax rate scenarios
Company’s strategy in the cigarettes business division
GST implementation may lead to a levy of a sin tax of 40% on cigarettes in addition to the prevailing excise duty structure. The sin tax will replace the state VAT which is currently at 26.5% on a blended basis as per our estimates. This hike is significant and it will have a significant impact on the cigarettes business volume and profit growth. While the impact is significant, we find ITC is preparing ground for GST implementation by taking calibrated price hikes and steadily increasing the share of sub-65mm cigarettes. Post the implementation of GST, the profit growth trajectory for ITC will improve significantly as GST will remove various distribution inefficiencies. We maintain our Buy recommendation on ITC with a target price of Rs 300 after baking in the negative impact of GST implementation starting from FY18. Our key arguments are:
ITC will have to hike cigarette prices by ~22% to offset 10% excise hike and 40% sin tax in FY18; will lose 8% volumes: ITC’s cigarette business pays VAT at a rate of 26.5% on a weighted average basis as per our estimates and excise duty accounts for ~32% of MRP and ~46% of gross sales (excluding VAT). Assuming a base case of excise duty hike of 10% in addition to the levy 40% sin tax, we estimate that ITC will have to increase cigarettes prices by 22% in FY18 to maintain flattish EBIT. Our regression model for price growth-volume growth for cigarettes indicates that this will lead to 8% decline in volumes. However, in case the government only levies 40% sin tax and keeps excise duty unchanged for FY18, ITC’s cigarette EBIT could grow by 10% if it were to hike prices by 20%. In this scenario volumes could decline by around 6%.
ITC is strategically moving 69mm consumers to 64mm: Since the launch of 64mm cigarettes in 2012, its share in total sales has increased to ~21% as per our channel checks. Down-trading by consumers from 69mm to this segment has helped arrest the decline in volumes due to price hikes over the years. We believe that ITC will move consumers to 64mm from 69mm through lower price hikes in 64mm as compared to 69mm or even stop 69mm sales in some regions. We estimate such a strategy will help deliver 5-8% EBIT growth in FY18 and limit volume declines to 4-6% even with 22% price hikes.
ITC’s current pricing strategy indicates it is getting ready for GST implementation in FY18: For the fiscal YTD, ITC has taken a modest price hike of ~6% as compared to 20%/16%/20% taken in FY14/15/16. It has taken a price hike of ~15% only in 84mm segment while in the price sensitive segments the price hike is meagre in the range of 2-4%. We expect volume growth to recover to 5% in FY17 as compared to decline of 3%/6%/9% in FY14/15/16. With volume growth recovery in FY17 and benign price base in the sensitive categories, ITC is well prepared to absorb impact on volumes in FY18 due to a possible 20%+ price hike.
Growth to stabilise from FY19: With the levy of 40% sin tax, uncertainty regarding state taxes on cigarettes will be mitigated to a very large extent extent as state government collections will see a big jump. More importantly, a uniform tax rate of 40% across states in GST regime will solve various logistical issues that cigarette companies today face due to current regime of differential cigarette VAT across states. The current regime leads to significant proliferation of illegal transport of cigarettes which has impacted cigarette sales in large states like TN, Kerala and Maharashtra. With the logistic issues in cigarettes business addressed, we believe that even FMCG other business will get a boost in states affected by high cigarette VAT rates. Also growth in cigarettes business should normalise from FY19 onwards even with 10% excise hike every year.
Revise FY17/18 estimates and introduce FY19 estimates; Maintain Buy: We have reduced our
estimates for FY17/18 by 4%/9% due to moderate price hikes in FY17 and GST impact in FY18,
and introduced our estimates for FY19. The stock has historically traded at 25% discount to FMCG
multiple (ex ITC). Having already built in the entire impact of GST in our numbers, we value the
stock at 30x our September 2018 earnings at Rs 300.
BUY (Maintain)
CMP RS 262 / TARGET RS 300 (+14%) COMPANY DATA
O/S SHARES (MN) : 12071
MARKET CAP (RSBN) : 3157
MARKET CAP (USDBN) : 47.2
52 - WK HI/LO (RS) : 263 / 178
LIQUIDITY 3M (USDMN) : 38.1
PAR VALUE (RS) : 1
SHARE HOLDING PATTERN, %
Jun 16 Mar 16 Dec 15
FII / NRI : 20.6 20.5 20.8
FI / MF : 35.1 35.3 35.3
NON PRO : 1.7 1.7 1.6
PUBLIC & OTHERS : 42.6 42.6 42.3
PRICE PERFORMANCE, %
1MTH 3MTH 1YR
ABS 0.5 9.6 23.3
REL TO BSE -1.2 3.6 11.5
PRICE VS. SENSEX
Source: Phillip Capital India Research
KEY FINANCIALS
Rs mn FY17E FY18E FY19E
Net Sales 399,103 422,736 468,424
EBIDTA 152,397 162,039 185,526
Net Profit 104,443 111,133 126,312
EPS, Rs 8.7 9.2 10.5
PER, x 30.3 28.5 25.0
EV/EBIDTA, x 20.3 19.1 16.6
P/BV, x 9.1 9.0 8.8
ROE, % 30.1 31.5 35.1
Source: PhillipCapital India Research Est.
Naveen Kulkarni, CFA, FRM (+ 9122 6667 9947) [email protected] Jubil Jain (+ 9122 6667 9766) [email protected]
70
100
130
160
Apr-14 Oct-14 Apr-15 Oct-15 Apr-16
ITC Rel. to BSE
Page | 2 | PHILLIPCAPITAL INDIA RESEARCH
ITC LTD COMPANY UPDATE
Impact of FY18 GST implementation on net realization per stick and EBIT growth for cigarettes
Case 1 (Base Case): 40% sin tax, 10% excise duty hike in FY18/19 Our base case assumption is that government will levy a 40% sin tax on cigarettes (to provide compensation to states) and also increase excise duty on cigarettes by 10% in both FY18/19. Our assumption is based on 2 reasons – 1) A significant increase in taxes will force companies to hike cigarette prices which will significantly impact volumes and 2) Revenue for the government is maximized when it implements both 40% sin tax and 10% excise hike. Since the objectives of the government are to reduce consumption volumes and to increase tax collection, government will maximize its achievement in this case. We estimate that ITC will need to hike cigarette prices by ~22% to compensate for increase in excise duty by 10% and increase in VAT rate of 26.5% to 40% sin tax. This will lead to a volume decline of ~8% but net realisation per stick will grow by 8% translating flattish net sales for the cigarettes business. In this scenario, we estimate cigarettes business EBIT to grow by 10%/0%/11% in FY17/18/19. Assumptions FY16 FY17 FY18 FY19
Excise duty hike 10.0% 10% 10%
VAT rate 26.5% 26.5% 40% 40%
MRP hike 6.0% 22% 6%
Volume growth estimate -8.7% 5.0% -7.9% 6%
Per stick realization growth calculations
(all figures in Rs unless specified) FY16 FY17 FY18 FY19
MRP 6.38 6.75 8.27 8.82
VAT rate 26.5% 26.5% 40% 40%
VAT 1.34 1.41 2.36 2.52
Margin to retailers and distributors 0.63 0.67 0.82 0.87
Gross realization 4.41 4.67 5.09 5.42
Gross realization growth
5.9% 9.0% 6.6%
Excise duty 2.03 2.24 2.47 2.74
Net realization 2.38 2.43 2.62 2.69
Net realization growth
2.2% 7.6% 2.7%
Total tax/MRP 52.8% 54.1% 58.4% 59.6%
EBIT calculation
(all figures in Rs mn unless specified) FY16 FY17 FY18 FY19
Volume (mn sticks) 73,384 77,053 70,951 75,094
Gross sales 323,624 359,825 360,985 407,321
Excise duty 148,742 172,450 175,308 205,532
Net sales 174,882 187,375 185,677 201,789
Operating cost 57,358 58,458 57,053 58,780
EBIT 117,524 128,917 128,624 143,009
EBIT growth yoy
9.7% -0.2% 11.2%
EBIT margin 67.2% 68.8% 69.3% 70.9%
Government collection (Rs mn) FY16 FY17 FY18 FY19
Total excise 148,742 172,450 175,308 205,532
Total VAT 98,052 109,020 167,654 189,174
Total tax 246,795 281,471 342,962 394,706
Source: PhillipCapital estimates
We expect 22% MRP hike to result in 8% volume decline
With 22% MRP hike, gross realization per stick will rise by 9% only, due to rise in sin tax/VAT. Total tax/MRP in FY18 will rise 430bps to 58.4%
Due to volume decline in FY18, for cigarettes business, net sales and EBIT growth will be flattish
With excise duty hike and sin tax levy in FY18, government tax collection from ITC cigarette business will increase from 281bn in FY17 to Rs 343bn in FY18
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ITC LTD COMPANY UPDATE
Case 2: 40% sin tax, 10% excise hike in FY18/19 and differential price hikes to intentionally shift consumers from 69mm to 64mm While this scenario, is an extension of case 1, it is represented separately to highlight that ITC may play across the price segments to sustain EBIT growth in FY18. As against flattish EBIT in FY18 in case 1, ITC may achieve 6% EBIT growth in FY18 if it can arrest volume fall due to price hikes by shifting 69mm smokers to 64mm. ITC had introduced 64mm cigarettes in 2012 as part of its strategy to maximise revenue due to differential excise duties. Similarly, it can again focus on 64mm cigarettes by down-trading 69mm smokers to 64mm, thereby changing the mix. While ITC will have to hike cigarette prices by ~22% in FY18 due to tax hikes, it may hike prices in 69mm more (30%) and 64mm less (20%), or completely stop 69mm for some brands and price 64mm at 69mm. This can help increase realisations significantly, and also maintain price points. If the ratio of 64mm smokers rises from current estimated 22% to 35% at the cost of 69mm share, volumes may fall only by 5% and ITC could still be able to report cigarettes EBIT growth of 6% in FY18.
Assumptions FY16 FY17 FY18 FY19
Excise duty hike
10.0% 10% 10%
VAT rate 26.5% 26.5% 40% 40%
MRP hike
6.0% 22% 6%
Volume growth estimate -8.7% 5.0% -5% 6%
Cigarette estimated Volume break-up FY16 FY17 FY18 FY19
>75 mm 10% 11% 12% 13%
70-mm - 75mm 5% 4% 3% 3%
65 mm- 70 mm 64% 63% 50% 49%
<65 mm 21% 22% 35% 35%
MRP (in Rs) FY16 FY17 FY18 FY19
>75 mm 10.9 12.5 15.6 16.6
70-mm - 75mm 7.8 7.9 9.6 10.2
65 mm- 70 mm 6.3 6.5 8.5 9.0
<65 mm 4.1 4.4 5.3 5.6
Wt. avg MRP 6.37 6.75 8.24 8.81
Price hike
6.0% 22.0% 6.9%
Per stick realization growth calculations
(all figures in Rs unless specified) FY16 FY17 FY18 FY19
MRP 6.38 6.75 8.24 8.81
VAT rate 26.5% 26.5% 40% 40%
VAT 1.34 1.41 2.35 2.52
Margin to retailers and distributors 0.63 0.67 0.82 0.87
Gross realization 4.41 4.67 5.07 5.42
Gross realization growth
5.9% 8.5% 6.9%
Excise duty 2.03 2.24 2.40 2.67
Net realization 2.38 2.43 2.66 2.75
Net realization growth
2.2% 9.5% 3.2%
Total tax/MRP 53% 54.1% 57.8% 59%
EBIT growth calculation
(all figures in Rs mn unless specified) FY16 FY17 FY18 FY19
Volume (mn sticks) 73,384 77,053 73,201 77,476
Gross sales 323,624 359,825 370,931 419,774
Excise duty 148,742 172,450 175,988 206,842
Net sales 174,882 187,375 194,943 212,932
Operating cost 57,358 58,458 57,741 59,522
EBIT 117,524 128,917 137,202 153,410
EBIT margin 67.2% 68.8% 70.4% 72.0%
EBIT growth yoy
9.7% 6.4% 11.8%
We expect 22% MRP hike to result in 5% volume decline due to intentional mix change. In case 1, volume growth was steeper at 8%.
With 22% MRP hike, gross realization per stick will rise by 8.5% only, due to rise in sin tax/VAT. Total tax/MRP in FY18 will rise 370bps to 57.8%
Due to volume decline in FY18, for cigarettes business, net sales will grow by 4% and EBIT will grow by 6%
ITC may intentionally increase share of 64mm sales at the cost of that of 69mm through differential packaging or differential distribution.
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ITC LTD COMPANY UPDATE
Government collection (Rs mn) FY16 FY17 FY18 FY19
Total excise 148,742 172,450 175,988 206,842
Total VAT 98,052 109,020 172,273 194,958
Total tax 246,795 281,471 348,261 401,800
Source: PhillipCapital India Research
Case 3: 40% sin tax, 0%/10% excise duty hike in FY18/19 This scenario may play out if the central government gives respite to cigarette manufacturers in FY18 to absorb the levy of 40% sin tax. We however, consider the scenario improbable as the tax collection for central government will reduce in this case. As per our estimates, ITC may hike cigarette prices by ~20% to compensate for levy of 40% sin tax. This will lead to a volume decline of ~6% and lead to 13% growth in net realisation per stick. Net sales for cigarettes will increase by 6% yoy. In this case, we estimate cigarettes business EBIT to grow by 10%/10%/12% in FY17/18/19.
Assumptions FY16 FY17 FY18 FY19
Excise duty hike 10.0% 0% 10%
VAT rate 26.5% 26.5% 40% 40%
MRP hike 6.0% 20% 6%
Volume growth estimate -8.7% 5.0% -6% 6%
Per stick realization growth calculations
(all figures in Rs unless specified) FY16 FY17 FY18 FY19
MRP 6.38 6.75 8.13 8.67
VAT rate 26.5% 26.5% 40% 40%
VAT 1.34 1.41 2.32 2.48
Margin to retailers and distributors 0.63 0.67 0.81 0.86
Gross realization 4.41 4.67 5.00 5.34
Gross realization growth
5.9% 7.2% 6.6%
Excise duty 2.03 2.24 2.25 2.49
Net realization 2.38 2.43 2.76 2.85
Net realization growth
2.2% 13.4% 3.2%
Total tax/MRP 53% 54% 56% 57%
EBIT growth calculation
(all figures in Rs mn unless specified) FY16 FY17 FY18 FY19
Volume (mn sticks) 73,384 77,053 72,276 76,497
Gross sales 323,624 359,825 361,700 408,127
Excise duty 148,742 172,450 162,348 190,337
Net sales 174,882 187,375 199,352 217,790
Operating cost 57,358 58,458 57,459 59,217
EBIT 117,524 128,917 141,893 158,573
EBIT margin 67.2% 68.8% 71.2% 72.8%
EBIT growth yoy
9.7% 10.1% 11.8%
Government collection (Rs mn) FY16 FY17 FY18 FY19
Total excise 148,742 172,450 162,348 190,337
Total VAT 98,052 109,020 167,986 189,549
Total tax 246,795 281,471 330,334 379,886
Source: PhillipCapital India Research
With excise duty hike and sin tax levy in FY18, government tax collection from ITC cigarette business will increase from 281bn in FY17 to Rs 348bn in FY18
We expect 20% MRP hike to result in 6% volume decline
With 20% MRP hike, gross realization per stick will rise by 7.2% only due to rise in sin tax/VAT. Total tax/MRP in FY18 will rise 200bps to 56%
Due to volume decline in FY18, for cigarettes business, net sales will grow by 6%. However EBIT will grow by 10% yoy.
With no excise duty hike and only a sin tax levy in FY18, government tax collection from ITC cigarette business will increase from 281bn in FY17 to Rs 330bn in FY18
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ITC LTD COMPANY UPDATE
Case 4: No change in VAT rate in FY18/19, 10% excise duty hike in FY18/19 This scenario is highly unlikely as it minimizes the growth in tax collection for centre and states combined. Also, in this case cigarette volumes in FY18 may again see positive growth which is against the government’s interests. In this case, ITC will only have to hike MRP by 7% and will see volume growth of 5%. EBIT growth will be healthy in FY17/18/19 at 10%/13%/13%. Assumption FY16 FY17 FY18 FY19
Excise duty hike
10.0% 10% 10%
VAT rate 26.5% 26.5% 26.5% 26.5%
MRP hike
6.0% 7% 7%
Volume growth estimate -8.7% 5.0% 5% 5%
Per stick realization growth calculations
(all figures in Rs unless specified) FY16 FY17 FY18 FY19
MRP 6.38 6.75 7.25 7.81
VAT rate 26.5% 26.5% 26.5% 26.5%
VAT 1.34 1.41 1.52 1.64
Margin to retailers and distributors 0.63 0.67 0.72 0.77
Gross realization 4.41 4.67 5.02 5.40
Gross realization growth
5.9% 7.4% 7.6%
Excise duty 2.03 2.24 2.47 2.74
Net realization 2.38 2.43 2.54 2.66
Net realization growth
2.2% 4.6% 4.6%
Total tax/MRP 53% 54% 55% 56%
EBIT growth calculation
(all figures in Rs mn unless specified) FY16 FY17 FY18 FY19
Volume (mn sticks) 73,384 77,053 80,891 84,919
Gross sales 323,624 359,825 405,682 458,319
Excise duty 148,742 172,450 199,868 232,422
Net sales 174,882 187,375 205,815 225,897
Operating cost 57,358 58,458 60,093 61,844
EBIT 117,524 128,917 145,722 164,053
EBIT margin 67.2% 68.8% 70.8% 72.6%
EBIT growth yoy
9.7% 13.0% 12.6%
Government collection (Rs mn) FY16 FY17 FY18 FY19
Total excise 148,742 172,450 199,868 232,422
Total VAT 98,052 109,020 122,914 138,862
Total tax 246,795 281,471 322,782 371,284
Source: PhillipCapital India Research
We expect 7% MRP hike to result in 5% volume growth
Gross realization will rise in line with MRP due to absence of VAT hike. It will however be marginally impacted by mix change. Total tax/MRP in FY18 will rise 100bps to 55%
Net sales will grow by 9% and EBIT will grow by 13%
Government tax collection from ITC cigarette business will increase from 281bn in FY17 to Rs 322bn in FY18
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ITC LTD COMPANY UPDATE
EPS sensitivity The table shows our estimate for FY18 EPS for ITC based on different scenarios of volume growth and price hike for the base case (case 1), (10% excise duty hike in FY18 and levy of 40% sin tax).
EPS for FY18 (Rs per share)
MRP hike
20% 22% 24%
Volume decline 6% 9.10 9.43 9.77
8% 8.90 9.23 9.56
10% 8.71 9.03 9.36
EPS growth for FY18
MRP hike
20% 22% 24%
Volume decline 6% 4.7% 8.5% 12.4%
8% 2.4% 6.2% 10.0%
10% 0.2% 3.9% 7.7%
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ITC LTD COMPANY UPDATE
Appendix
Regression analysis for price hikes vs. volume growth for last 5 years
Source: Company, PhillipCapital India Research
State-wise VAT in 2016
Sr. No. State
Cigarette Revenue
Contribution %
Current VAT Rate
% on cigarettes
1 Kerala 8 30.0
2 West Bengal 10 35.0
3 Karnataka 9 20.0
4 Tamil Nadu 11 30.0
5 Maharashtra 10 35.0
6 Andhra Pradesh 10 20.0
7 Uttar Pradesh 2.5 40.0
8 Rajasthan 2.5 45.0
9 Jammu & Kashmir 1 40.0
10 Gujarat 3 30.0
11 Delhi 2 20.0
12 Himachal Pradesh 2 36.0
13 Bihar 2 20.0
14 Assam 3 30.0
15 Madhya Pradesh 2 13.0
16 Chattisgarh 2 14.0
17 Jharkhand 2 20.0
18 Orissa 2 13.5
19 Uttarakhand 2 12.5
20 Goa 2 22.0
21 Meghalaya 2 20.0
22 Punjab 2 33.0
23 Tripura 2 13.5
24 Arunachal Pradesh 2 20.0
25 Manipur 2 13.5
26 Nagaland 2 13.3
Weighted avg. VAT
26.5
Source: PhillipCapital India Research
y = -0.86x + 0.11
-20%
-15%
-10%
-5%
0%
5%
10%
15%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%
Vo
lum
e gr
ow
th
Price hike
As per regression analysis, Vol. growth = 0.11 - 0.86 x price growth
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ITC LTD COMPANY UPDATE
Estimated volume break-up for cases (1), (3) and (4), and estimated weighted average MRP for cigarette segments of ITC in 2016
Cigarette estimated Volume break-up FY16 FY17 FY18 FY19
>75 mm 10% 11% 12% 13%
70-mm - 75mm 5% 4% 3% 3%
65 mm- 70 mm 64% 63% 62% 60%
<65 mm 21% 22% 23% 24%
MRP (in Rs) FY16
>75 mm 10.9
70-mm - 75mm 7.8
65 mm- 70 mm 6.3
<65 mm 4.1
Wt. avg. MRP 6.37
Source: PhillipCapital India Research
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ITC LTD COMPANY UPDATE
One-year forward P/E Band EV/EBITDA band
Source: Company. PhillipCapital India Research
8x
16x
24x
32x
0
50
100
150
200
250
300
350 Rs
4x
8x
12x
16x
0
500000
1000000
1500000
2000000
2500000
3000000 Rs mn
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ITC LTD COMPANY UPDATE
Financials
Income Statement Y/E Mar, Rs mn FY16E FY17E FY18E FY19E
Net sales 364,753 399,103 422,736 468,424
Growth, % 1.1 9.4 5.9 10.8
Other income 3,621 4,056 4,542 4,906
Total income 368,374 403,159 427,279 473,330
Raw material expenses -137,030 -150,819 -160,110 -173,310
Employee expenses -23,285 -25,144 -26,632 -29,042
Other Operating expenses -70,127 -74,800 -78,497 -85,451
EBITDA (Core) 137,932 152,397 162,039 185,526
Growth, % 2.4 10.5 6.3 14.5
Margin, % 37.8 38.2 38.3 39.6
Depreciation -10,345 -11,285 -12,462 -13,609
EBIT 127,588 141,112 149,577 171,918
Growth, % 2.0 10.6 6.0 14.9
Margin, % 35.0 35.4 35.4 36.7
Interest paid -491 -521 -552 -593
Other Non-Operating Income 18,037 20,091 21,949 23,002
Pre-tax profit 145,134 160,682 170,974 194,326
Tax provided -51,137 -56,239 -59,841 -68,014
Profit after tax 93,997 104,443 111,133 126,312
Net Profit 93,997 104,443 111,133 126,312
Growth, % 2.4 11.1 6.4 13.7
Net Profit (adjusted) 93,997 104,443 111,133 126,312
Unadj. shares (m) 12,023 12,023 12,023 12,023
Wtd avg shares (m) 12,023 12,023 12,023 12,023
Balance Sheet Y/E Mar, Rs mn FY16E FY17E FY18E FY19E
Cash & bank 65,640 71,224 70,767 90,359
Debtors 16,864 18,479 19,573 13,475
Inventory 85,198 86,773 87,731 64,576
Loans & advances 31,887 35,076 38,583 42,442
Total current assets 199,589 211,552 216,656 210,853
Investments 128,542 128,542 128,542 128,542
Gross fixed assets 226,478 256,478 286,478 316,478
Less: Depreciation -84,432 -95,717 -108,179 -121,788
Add: Capital WIP 25,008 25,008 22,918 25,318
Net fixed assets 167,054 185,769 201,217 220,008
Total assets 495,185 525,863 546,415 559,404
Current liabilities 62,657 67,669 73,083 78,929
Provisions 83,186 91,504 100,655 100,655
Total current liabilities 145,843 159,174 173,738 179,584
Non-current liabilities 20,052 20,141 20,238 20,343
Total liabilities 165,894 179,315 193,976 199,927
Paid-up capital 8,047 12,071 12,071 12,071
Reserves & surplus 321,243 334,477 340,368 347,405
Shareholders’ equity 329,291 346,548 352,439 359,476
Total equity & liabilities 495,185 525,863 546,415 559,404
Source: Company, PhillipCapital India Research Estimates
**All numbers are in old reporting format
Cash Flow
FY16E FY17E FY18E FY19E
Pre-tax profit 145,134 160,682 170,974 194,326
Depreciation 10,345 11,285 12,462 13,609
Chg in working capital 14,267 7,042 9,100 31,347
Total tax paid -48,969 -56,239 -59,841 -68,014
Cash flow from operating activities 108,596 109,538 126,805 164,230
Capital expenditure -14,472 -30,000 -27,910 -32,400
Chg in investments -44,488 0 0 0
Cash flow from investing activities -58,960 -30,000 -27,910 -32,400
Free cash flow 49,636 79,538 98,895 131,830
Equity raised/(repaid) 21,933 17,257 5,891 7,037
Dividend (incl. tax) -81,816 -91,210 -105,242 -119,275
Cash flow from financing activities -59,883 -73,953 -99,351 -112,237
Net chg in cash -10,246 5,584 -457 19,593
Valuation Ratios
FY16E FY17E FY18E FY19E
Per Share data
EPS (INR) 7.8 8.7 9.2 10.5
Growth, % 2.4 11.1 6.4 13.7
Book NAV/share (INR) 27.4 28.8 29.3 29.9
FDEPS (INR) 7.8 8.7 9.2 10.5
CEPS (INR) 8.7 9.6 10.3 11.6
CFPS (INR) 8.5 8.5 9.2 12.3
DPS (INR) 5.7 6.5 7.5 8.5
Return ratios Return on assets (%) 20.0 20.5 20.8 22.9
Return on equity (%) 28.5 30.1 31.5 35.1
Return on capital employed (%) 22.9 23.5 23.9 26.6
Turnover ratios Asset turnover (x) 1.6 1.6 1.6 1.8
Sales/Total assets (x) 0.8 0.8 0.8 0.8
Sales/Net FA (x) 2.2 2.3 2.2 2.2
Working capital/Sales (x) 0.2 0.2 0.2 0.1
Working capital days 71.3 66.5 62.9 32.4
Liquidity ratios
Current ratio (x) 3.2 3.1 3.0 2.7
Quick ratio (x) 1.8 1.8 1.8 1.9
Dividend cover (x) 1.4 1.3 1.2 1.2
Valuation
PER (x) 33.6 30.3 28.5 25.0
Price/Book (x) 9.6 9.1 9.0 8.8
Yield (%) 2.2 2.5 2.9 3.2
EV/Net sales (x) 8.5 7.7 7.3 6.6
EV/EBITDA (x) 22.4 20.3 19.1 16.6
EV/EBIT (x) 24.3 21.9 20.7 17.9
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ITC LTD COMPANY UPDATE
Stock Price, Price Target and Rating History
Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year.
Rating Criteria Definition
BUY >= +15% Target price is equal to or more than 15% of current market price
NEUTRAL -15% > to < +15% Target price is less than +15% but more than -15%
SELL <= -15% Target price is less than or equal to -15%.
S (TP 300)
S (TP 300) S (TP 300)
B (TP 320) S (TP 340)
N (TP 300)
S (TP 300) S (TP 270)
S (TP 270)
S (TP 270)
S (TP 270) B (TP 340)
B (TP 375)
B (TP 375)
B (TP 275)
150
170
190
210
230
250
270
290
A-13 O-13 N-13 J-14 F-14 A-14 M-14 J-14 A-14 O-14 D-14 J-15 M-15 A-15 J-15 J-15 A-15 O-15 D-15 J-16 M-16 A-16 J-16 J-16
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ITC LTD COMPANY UPDATE
Contact Information (Regional Member Companies)
SINGAPORE: Phillip Securities Pte Ltd
250 North Bridge Road, #06-00 RafflesCityTower,
Singapore 179101
Tel : (65) 6533 6001 Fax: (65) 6535 3834
www.phillip.com.sg
MALAYSIA: Phillip Capital Management Sdn Bhd
B-3-6 Block B Level 3, Megan Avenue II,
No. 12, Jalan Yap Kwan Seng, 50450 Kuala Lumpur
Tel (60) 3 2162 8841 Fax (60) 3 2166 5099
www.poems.com.my
HONG KONG: Phillip Securities (HK) Ltd
11/F United Centre 95 Queensway Hong Kong
Tel (852) 2277 6600 Fax: (852) 2868 5307
www.phillip.com.hk
JAPAN: Phillip Securities Japan, Ltd
4-2 Nihonbashi Kabutocho, Chuo-ku
Tokyo 103-0026
Tel: (81) 3 3666 2101 Fax: (81) 3 3664 0141
www.phillip.co.jp
INDONESIA: PT Phillip Securities Indonesia
ANZTower Level 23B, Jl Jend Sudirman Kav 33A,
Jakarta 10220, Indonesia
Tel (62) 21 5790 0800 Fax: (62) 21 5790 0809
www.phillip.co.id
CHINA: Phillip Financial Advisory (Shanghai) Co. Ltd.
No 550 Yan An East Road, OceanTower Unit 2318
Shanghai 200 001
Tel (86) 21 5169 9200 Fax: (86) 21 6351 2940
www.phillip.com.cn
THAILAND: Phillip Securities (Thailand) Public Co. Ltd.
15th Floor, VorawatBuilding, 849 Silom Road,
Silom, Bangrak, Bangkok 10500 Thailand
Tel (66) 2 2268 0999 Fax: (66) 2 2268 0921
www.phillip.co.th
FRANCE: King & Shaxson Capital Ltd.
3rd Floor, 35 Rue de la Bienfaisance
75008 Paris France
Tel (33) 1 4563 3100 Fax : (33) 1 4563 6017
www.kingandshaxson.com
UNITED KINGDOM: King & Shaxson Ltd.
6th Floor, Candlewick House, 120 Cannon Street
London, EC4N 6AS
Tel (44) 20 7929 5300 Fax: (44) 20 7283 6835
www.kingandshaxson.com
UNITED STATES: Phillip Futures Inc.
141 W Jackson Blvd Ste 3050
The Chicago Board of TradeBuilding
Chicago, IL 60604 USA
Tel (1) 312 356 9000 Fax: (1) 312 356 9005
AUSTRALIA: PhillipCapital Australia
Level 10, 330 Collins Street
Melbourne, VIC 3000, Australia
Tel: (61) 3 8633 9800 Fax: (61) 3 8633 9899
www.phillipcapital.com.au
SRI LANKA: Asha Phillip Securities Limited
Level 4, Millennium House, 46/58 Navam Mawatha,
Colombo 2, Sri Lanka
Tel: (94) 11 2429 100 Fax: (94) 11 2429 199
www.ashaphillip.net/home.htm
INDIA
PhillipCapital (India) Private Limited
No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013
Tel: (9122) 2300 2999 Fax: (9122) 6667 9955 www.phillipcapital.in
Management(91 22) 2483 1919
Kinshuk Bharti Tiwari (Head – Institutional Equity) (91 22) 6667 9946
(91 22) 6667 9735
Research IT Services Pharma & Speciality Chem
Dhawal Doshi (9122) 6667 9769 Vibhor Singhal (9122) 6667 9949 Surya Patra (9122) 6667 9768
Nitesh Sharma, CFA (9122) 6667 9965 Shyamal Dhruve (9122) 6667 9992 Mehul Sheth (9122) 6667 9996
Banking, NBFCs Infrastructure Strategy
Manish Agarwalla (9122) 6667 9962 Vibhor Singhal (9122) 6667 9949 Naveen Kulkarni, CFA, FRM (9122) 6667 9947
Pradeep Agrawal (9122) 6667 9953 Deepak Agarwal (9122) 6667 9944 Anindya Bhowmik (9122) 6667 9764
Paresh Jain (9122) 6667 9948 Logistics, Transportation & Midcap Telecom
Consumer & Retail Vikram Suryavanshi (9122) 6667 9951 Naveen Kulkarni, CFA, FRM (9122) 6667 9947
Naveen Kulkarni, CFA, FRM (9122) 6667 9947 Media Manoj Behera (9122) 6667 9973
Jubil Jain (9122) 6667 9766 Manoj Behera (9122) 6667 9973 Technicals
Preeyam Tolia (9122) 6667 9950 Metals Subodh Gupta, CMT (9122) 6667 9762
Cement Dhawal Doshi (9122) 6667 9769 Production Manager
Vaibhav Agarwal (9122) 6667 9967 Yash Doshi (9122) 6667 9987 Ganesh Deorukhkar (9122) 6667 9966
Economics Mid-Caps & Database Manager Editor
Anjali Verma (9122) 6667 9969 Deepak Agarwal (9122) 6667 9944 Roshan Sony 98199 72726
Engineering, Capital Goods Oil & Gas Sr. Manager – Equities Support
Jonas Bhutta (9122) 6667 9759 Sabri Hazarika (9122) 6667 9756 Rosie Ferns (9122) 6667 9971
Vikram Rawat (9122) 6667 9986
Sales & Distribution Ashvin Patil (9122) 6667 9991 Sales Trader Zarine Damania (9122) 6667 9976
Shubhangi Agrawal (9122) 6667 9964 Dilesh Doshi (9122) 6667 9747 Bharati Ponda (9122) 6667 9943
Kishor Binwal (9122) 6667 9989 Suniil Pandit (9122) 6667 9745
Bhavin Shah (9122) 6667 9974
Ashka Mehta Gulati (9122) 6667 9934 Execution
Archan Vyas (9122) 6667 9785 Mayur Shah (9122) 6667 9945
Corporate Communications
Vineet Bhatnagar (Managing Director)
Jignesh Shah (Head – Equity Derivatives)
Automobiles
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ITC LTD COMPANY UPDATE
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Additional Disclosures of Interest: Unless specifically mentioned in Point No. 9 below: 1. The Research Analyst(s), PCIL, or its associates or relatives of the Research Analyst does not have any financial interest in the company(ies) covered in
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company (ies)covered in this report as of the end of the month immediately preceding the distribution of the research report. 3. The Research Analyst, his/her associate, his/her relative, and PCIL, do not have any other material conflict of interest at the time of publication of this
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any other products or services from the company(ies) covered in this report, in the past twelve months. 5. The Research Analyst, PCIL or its associates have not managed or co-managed in the previous twelve months, a private or public offering of securities for
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Sr. no. Particulars Yes/No
1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for investment banking transaction by PCIL
No
2 Whether Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of the company(ies) covered in the Research report
No
3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No
4 PCIL or its affiliates have managed or co-managed in the previous twelve months a private or public offering of securities for the company(ies) covered in the Research report
No
5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months
No
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ITC LTD COMPANY UPDATE
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PhillipCapital (India) Pvt. Ltd. Registered office: No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013