Upload
others
View
2
Download
0
Embed Size (px)
Citation preview
JM Financial Institutional Securities Limited
JM Financial Research is also available on: Bloomberg - JMFR <GO>, Thomson Publisher & Reuters S&P Capital IQ and FactSet Please see Appendix I at the end of this
report for Important Disclosures and Disclaimers and Research Analyst Certification.
Thank you for your ongoing support in
the Asiamoney Annual Brokers Poll.
Click here to see the JM Financial team.
The GST Council’s (perhaps unintentional?) u-turn on cigarette taxation immediately post
GST rollout ensured that government retained a lion’s share of ITC’s value-addition. Over the
past 5 years, 73% of the total value-added by ITC accrued to the government (‘value-added’
defined as the value created by the economic activities of the company and its employees).
ITC contributed a cumulative INR 1.5tn (USD 23bn) to the Exchequer over the past 5 years
(FY14-18) during which period its own profits were just INR477bn (USD 7.3bn) - share of the
government in the value-added by ITC is 3.5x the amount that accrued to the providers of
capital. Taking the cigarettes business alone, for every rupee of profit that the cigarettes
business earned in FY18, the government made 3.6x. From a CF perspective, ITC managed a
20% growth in cashflow from operations (pre-exceptional basis) despite a mere 6.8%
growth in operating profit - a large part of this delta was due to timing of payout of GST
liabilities vs excise, as reflected in higher ‘statutory liabilities’ in Mar’18 BS. We find risk-
reward favourable with stock trading at c.50% discount to consumer peers.
For every rupee of profit that the cigarette business makes, the government earns 3.6x:
Cigarette taxation regime remained harsh in FY18 as the GST Council, against its earlier
promise of keeping cigarette taxes neutral, hiked it in excess of 13% (19% for Kings-
sized) which, coupled with a 6% hike in excise in Budget 2017, increased indirect tax
incidence by c.20%. ITC’s cigarettes segment’s indirect taxes outflow rose 12% in FY18
vs a mere 7% LTL growth in cigarette revenue; the consequence of the sharp rise in taxes
was an estimated c.3% decline in cigarette volumes and a mere c.5% growth in post-tax
profits, even as government’s earnings from the segment continued to grow at double-
digit (+11.7%, as per our workings). Over a 3-year period, government’s earnings from
the cigarettes business (currently at USD 4.6bn p.a.) grew at 9% CAGR while ITC’s own
profits grew just 4-5% p.a. The equation, though, is more normal when seen from a
longer-term (8-year) perspective – both grew at c.13% CAGR. The sharp rise in cigarette
taxes has led to a proliferation of illegal cigarettes in India volumes of which, as per the
company, has grown at 4.8% CAGR since FY11 compared to 5% p.a. decline in legal
cigarettes during the same period. The company estimates an annual loss of INR 130bn
(USD 2bn p.a.) to the Exchequer on this count. Taxes on cigarettes remained effectively
about 50x higher than on other tobacco products.
ITC reported a 24% growth in cashflow from operations and 37% growth in FCFF in
FY18: ITC’s operating cashflow grew 20% in FY18 ex exceptional items - significantly
ahead of 6.8% growth in EBITDA, 5.3% growth in adjusted net profit. This was led in
large part by INR17bn working capital release most of which was helped by higher
outstanding statutory liabilities as GST dues are payable in the following month while
excise used to be settled in the same month itself. Adjusting for this transition benefit,
operating CF growth was c.8% - closer to growth in profits. Capex outflow declined 9%
YoY which drove a 37% growth in reported FCFF; 15% on normalised basis, as per our
workings. Segmentally, the largest share of capex was on Hotels – a business with just
2.6% ROCE (pre-tax) vs ITC’s overall segment ROCE of 64% (pre-tax). Net annual
accretion of INR54bn to ITC’s net cashpool (INR 259bn at Mar’18 – USD 4bn) was the
highest ever and ITC’s net-cash now stands at c.62% of its net sales (2nd
only to GSK in
the sector) – implying a scope for hike in payout ratio from present c.67% level.
Richard Liu [email protected] | Tel: (91 22) 66303064
Vicky Punjabi [email protected] | Tel: (91 22) 66303065
Recommendation and Price Target
Current Reco. BUY
Previous Reco. BUY
Current Price Target (12M) 335
Upside/(Downside) 25.9%
Previous Price Target 335
Change 0.0%
Key Data – ITC IN
Current Market Price INR263
Market cap (bn) INR3,206/US$46.7
Free Float 54%
Shares in issue (mn) 12,023.3
Diluted share (mn) 12,240.9
3-mon avg daily val (mn) INR2,661/US$38.8
52-week range 368/250
Sensex/Nifty 35,217/10,671
INR/US$ 68.6
Price Performance % 1M 6M 12M
Absolute -3.5 0.2 -15.9
Relative* -4.3 -3.5 -26.1
* To the BSE Sensex
ITC | BUY
29 June 2018 India | Consumer | Company Update
FY18 AR: Government remained the bigger beneficiary
Financial Summary (INR mn) Y/E March FY16A* FY17A FY18A FY19E FY20E
Net Sales 390,507 417,230 421,237 462,906 515,757
Sales growth (%) 1.6 6.8 1.0 9.9 11.4
EBITDA 144,509 154,359 164,830 183,232 208,500
EBITDA (%) 36.6 36.6 38.8 39.3 40.1
Adjusted net profit 93,429 102,884 108,301 121,597 137,752
EPS (INR) 7.7 8.5 8.9 9.9 11.2
EPS growth (%) -3.6 9.4 4.8 11.9 12.9
ROIC (%) 41.0 37.0 37.9 38.0 38.4
ROE (%) 25.1 23.1 21.9 22.0 22.7
PE (x) 34.2 31.3 29.9 26.7 23.6
Price/Book Value (x) 7.5 6.9 6.2 5.6 5.1
EV/EBITDA (x) 21.1 19.4 18.0 16.1 14.1
Dividend Yield 2.1 1.8 1.9 2.2 2.5
Source: Company data, JM Financial. Note: Valuations as of 27/Jun/2018
ITC 29 June 2018
JM Financial Institutional Securities Limited Page 2
For every rupee of profit that ITC’s cigarettes business makes, government earns 3.6x (INR mn) Exhibit 1.
Source: Company, JM Financial
Distribution of value-added and contribution to Exchequer (INR mn) Exhibit 2.
Source: Company, JM Financial
20+ years cigarette volume history Exhibit 3.
Source: Company, JM Financial
Rs mn FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 YoY 3yr cagr 8yr cagr
Cig VAT (estimated) 22,716 28,011 36,556 49,953 62,271 68,809 78,940 80,124 21,356
Cig Excise 79,619 92,539 99,260 120,172 136,204 136,478 148,625 157,714 46,325
Cig GST (estimated) / Other taxes 198,638
Estd Income Tax on Cig EBIT 16,089 18,422 21,501 25,680 31,343 35,884 42,416 43,353 46,666
Total taxes from Cig (A) 118,423 138,972 157,317 195,805 229,819 241,171 269,981 281,191 312,986 11.3% 9.1% 12.9%
Reported Cig EBIT - Parent 49,381 57,668 69,077 83,259 98,580 111,963 117,524 125,139 133,408 6.6% 6.0% 13.2%
Tax rate 32.6% 31.9% 31.1% 30.8% 31.8% 32.1% 36.1% 34.6% 35.0%
Tax Estd on Cig Profit 16,089 18,422 21,501 25,680 31,343 35,884 42,416 43,353 46,666
Cig estimated PAT (B) 33,292 39,245 47,576 57,580 67,237 76,078 75,108 81,786 86,742 6.1% 4.5% 12.7%
Cig Taxes / Cig PAT (A/B) 3.6 3.5 3.3 3.4 3.4 3.2 3.6 3.4 3.6
Rs mn FY13 FY14 FY15 FY16 FY17 FY18
PAT net of ESOP costs 70,574 83,790 90,783 93,284 102,009 107,840
YoY 18.7% 8.3% 2.8% 9.4% 5.7%
Incremental profit 13,216 6,993 2,501 8,725 5,831
Total Value-Added during the year 305,300 352,550 379,720 410,590 435,680 462,960
YoY 15.5% 7.7% 8.1% 6.1% 6.3%
Incremental value-added 47,250 27,170 30,870 25,090 27,280
1) Share of Exchequer 223,430 256,690 275,460 307,420 320,750 337,910
YoY 14.9% 7.3% 11.6% 4.3% 5.3%
Incremental contribution 33,260 18,770 31,960 13,330 17,160
2) Estd Share of Employees 17,480 20,146 23,095 23,316 24,443 24,875
YoY 15.3% 14.6% 1.0% 4.8% 1.8%
Incremental share 2,666 2,949 221 1,127 432
3) Estd Share of Capital Providers 64,390 75,714 81,165 79,854 90,487 100,175
YoY 17.6% 7.2% -1.6% 13.3% 10.7%
Incremental share 11,324 5,451 -1,311 10,633 9,689
Constitutes 73% of value-added
Incremental contr to Exchequer of INR 17bn vs profit
growth of INR 5.8bn in FY18
20%
12%
0%
-1%
-2%
1%
-8%
4%3%
7%8%
7%
-1%
-3%
7%
-3%
6%
2%
-3%
-10%-8%
-1%-3%
-12%
-5%
2%
9%
16%
23%
FY96 FY98 FY00 FY02 FY04 FY06 FY08 FY10 FY12 FY14 FY16 FY18
Cig Vol Growth %
FY18 cig volumes lower vs 13-year ago level
ITC 29 June 2018
JM Financial Institutional Securities Limited Page 3
ROCE impacted by higher capital expenditure in lower ROCE businesses like Hotels Exhibit 4.and Paperboard.
Source: Company, JM Financial
Higher statutory liabilities (on GST transition) and lower inventories helped drive a reduction in net working capital (INR mn) Exhibit 5.
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Inventory 57,348 64,269 75,221 82,552 85,869 91,294 81,862 75,845
No of days' sale 94 90 88 86 82 85 72 66
Receivables 10,867 12,002 13,958 24,392 19,821 19,172 24,743 26,823
No of days' sale 18 17 16 25 19 18 22 23
Other Current Assets 963 1,371 6,241 10,960 4,067 5,534 6,571 12,995
% of sales 0% 1% 2% 3% 1% 1% 2% 3%
Loans & Advances 16,393 15,803 17,759 22,451 21,341 36,432 44,075 46,680
% of sales 7% 6% 6% 6% 6% 9% 11% 11%
Current Liabilities & Provisions 48,207 51,803 55,691 60,407 60,464 67,029 71,604 94,168
No of days' expenses 167 154 135 133 121 135 132 176
Net Working Capital (ex-cash) 37,364 41,641 57,487 79,949 70,634 85,402 85,646 68,175
% of sales 17% 16% 18% 23% 18% 22% 21% 16%
Source: Company, JM Financial
Components of capital employed (INR bn) Exhibit 6.
Source: Company, JM Financial
33.7%
35.3%35.7%
36.9% 37.5%38.2%
38.5%
40.5%
45.5%
48.5%49.5%
48.1%
46.0%
37.9%
34.3%33.1%
1.351.37 1.39
1.31
1.22
0.99
0.89
0.82
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
20%
25%
30%
35%
40%
45%
50%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
EBIT margin % (incl other income) ROCE % - pre-tax Asset Turnover - x (RHS)
Ind-AS
Fall in return metrics under Ind-AS due to impact of ESOPexpenses and non-recognition of proposed dividend pending shareholders' approval.
124 142 160 180 177 196 220
83 98 108 148187 205 260
42 57 8071
85 86 68
-43 -51 -59 -61-1 -2 -1
-20%
0%
20%
40%
60%
80%
100%
FY12 FY13 FY14 FY15 FY16 FY17 FY18
Net fixed assets Cash & Cash Eqv Net Working Cap (excl cash) Others
Proposed Dividend not recognised as liability under Ind-AS
ITC 29 June 2018
JM Financial Institutional Securities Limited Page 4
Cash flow movement during the year (INR bn) Exhibit 7.
Source: JM Financial, Company
Cash flow from operations rises sharply due to working Exhibit 8.capital release (INR bn)
Source: JM Financial, Company
We estimate normalised operating cashflow growth for FY18 to be c.8% vs Exhibit 9.reported growth of 24%
Source: Company, JM Financial
Available year-end cash/liquid surplus (INR bn) Exhibit 10.
Source: Company, JM Financial
Payout trend (INR bn) Exhibit 11.
Source: Company, JM Financial
205
132
15
62
260
50
100
150
200
250
300
350
Mar 2017 balance Cash from operations Cash used ininvestments
Cash used infinancing
Mar 2018 balance
35.0
44.6
55.162.6
71.0 73.4
98.4 98.0106.3
131.7
17.5
32.2
40.2 38.5
44.7 44.9
65.574.6 75.6
103.7
0
22
44
66
88
110
132
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Net cash generated from operating activities - INR bn Free cash flow - INR bn
24%
4%
12%
8%
0%
3%
6%
9%
12%
15%
18%
21%
24%
27%
FY18 Reported Op CFgrowth
Exceptional Item Wcap savings from GSTtransition
Normalised FY18 Op CFgrowth
71.882.2
97.1105.3
145.7
186.6
205.0
259.4
50
100
150
200
250
300
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Cash & Liquid Surplus (Net) - INR bn
37.840.9
48.555.7
60.3
63.0
69.4
75.8
22.3
19.3
0
17
34
51
68
85
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Dividend Payout - INR bn
Spe
cial
Div
iden
d
Special Dividend
ITC 29 June 2018
JM Financial Institutional Securities Limited Page 5
Guide to key subsidiaries (INR mn) Exhibit 12.
Subsidiary ITC's
holding Nature of business Turnover Net Profit
FY16 FY17 FY18 YoY % FY16 FY17 FY18 YoY %
Russell Credit 100% Investment arm 706 597 825 38% 450 342 638 86%
Srinivasa Resorts 68% Hotels 543 544 584 7% -17 -15 5 NM
ITC Infotech India Ltd 100% IT 9,613 9,362 10,203 9% 882 179 277 55%
ITC Infotech UK 100% IT 2,978 2,993 3,917 31% 70 95 117 24%
ITC Infotech USA 100% IT 5,679 5,925 5,713 -4% 91 85 126 49%
Surya Nepal 59% Cigarettes - Nepal 15,541 17,993 20,054 11% 3,933 4,603 5,381 17%
Fortune Park Hotels 100% Hotels 289 295 276 -7% 62 24 19 -21%
Technico Agri 100% Agriculture 1,004 1,486 820 -45% 158 145 -141 NM
Source: JM Financial, Company
Incremental EBITDA contributed by subsidiaries (INR mn) Exhibit 13.
Source: Company, JM Financial
A&P spends (INR mn) Exhibit 14.
Source: Company, JM Financial
2,8032,561
3,612
5,468
5,971
7,281 7,362
8,579
9,420
4.3%
3.3%
3.9%
4.9%
4.6%
5.1% 5.1%
5.6%5.7%
2%
4%
6%
8%
1,500
3,000
4,500
6,000
7,500
9,000
10,500
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Incremental Ebitda from Subs INR mn Subsidiaries' Contribution to Consol EBITDA
4,042
5,324 5,422
6,546
7,059
8,342 8,258
7,415
8,949
8,107
9,022
2.8%
3.2%
2.8%2.9%
2.7%
2.7% 2.4%
1.9%
2.3%
1.9% 2.0%
2%
2%
3%
3%
4%
1,000
3,000
5,000
7,000
9,000
11,000
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Advertisement & Sales Promotion - INR mn A&P - % of sales
ITC 29 June 2018
JM Financial Institutional Securities Limited Page 6
Turnover trends- Foods, other non-cigarettes FMCG (INR bn) Exhibit 15.
Key Commentaries on non-cig FMCG businesses:
- ITC’s non-cigarette FMCG business grew 11.3% on comparable basis
in FY18. Reported growth was lower at 7.8% due to GST related
accounting adjustments.
- The Foods business, which constitutes c.77% of non-cig FMCG,
reported 8% growth in FY18. We estimate comparable growth to also
be of the order of c.11%.
- The non-cigarette FMCG segment notched up a combined consumer
spends of nearly INR160bn p.a. (US$2.5bn):
- Aashirvaad and Sunfeast are INR40bn+ and INR35bn+ respectively
- Bingo! crossed INR20bn, Classmate and Yippee! are INR10bn+
each. Vivel (Personal care), Mangaldeep (Incense sticks) and
Candyman (Confectionery) are each in excess of INR5bn.
- Aashirvaad is No.1 in branded atta, Sunfeast is no.1 in premium
cream biscuits, Bingo! is No.1 in bridges segment of snack foods,
YiPPee! is No.2 in Noodles, Engage is no.2 in deodorants and
Fiama is no.2 in shower gels.
Source: JM Financial, Company
SG&A trends (INR bn) Exhibit 16.
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY13-18 CAGR FY18 YOY
Staff Cost 19.35 21.46 25.04 27.72 34.41 36.32 37.61 8.5% 3.6%
YoY growth % 13.3% 10.9% 16.7% 10.7% 24.1% 5.5% 3.6%
A&P 7.06 8.34 8.26 7.42 8.95 8.11 9.02 1.6% 11.3%
YoY growth % 7.8% 18.2% -1.0% -10.2% 20.7% -9.4% 11.3%
Other Exp 50.30 53.55 58.53 63.47 68.37 68.49 64.47 3.8% -5.9%
YoY growth % 14.8% 6.5% 9.3% 8.4% 7.7% 0.2% -5.9%
SG&A 76.71 83.35 91.83 98.61 111.73 112.92 111.11 5.0% -1.6%
YoY growth % 13.7% 8.6% 10.2% 7.4% 13.3% 1.1% -1.6%
Source: Company, JM Financial
Capex spends in Hotel segment doubled in FY18 Exhibit 17.(INR bn)
Source: Company, JM Financial
NWC release in FY18 was mostly attributable to higher Exhibit 18.outstanding statutory liabilities as GST dues are payable in the
following month (INR mn)
Source: Company, JM Financial
23.2
28.9
37.1
47.2
57.2
64.1
71.0
80.4
86.7
13.416.1
18.523.2 24.2
26.4 26.5 25.0 26.9
0
13
26
39
52
65
78
91
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Foods Turnover - INR bn Other FMCG Businesses Turnover - INR bn
6.1
7.2
9.8
2.11.5
2.6
8.1
3.8
1.3
3.5
2.6
11.6
4.7
1.6
5.6
1.0
8.49.2
0.9
9.1
0
3
6
9
12
Cigarettes FMCG-Others Hotels Agri Paper
FY15 FY16 FY17 FY18
Spent on construction of luxury hotels at Hyderabad, Kolkata and Ahmedabad
848
-807
5,726
11,009
18,444
-312
2,770
-444
-17,364-20,000
-10,000
0
10,000
20,000
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Net Working Capital Changes - Incr/(Decr) - INR mn
Overheads declined in FY18 vs 5%
CAGR over FY13-18.
ITC 29 June 2018
JM Financial Institutional Securities Limited Page 7
FY18 cigarette volumes lower vs 13-year ago level Exhibit 19.
Source: Company, JM Financial
Avg cig sales realisation (INR) Exhibit 20.
Source: Company, JM Financial
Segment-wise RoCE trends
Segment RoCE trend: Total consolidated Exhibit 21.
Source: Company, JM Financial
Segment RoCE trend: Cigarettes Exhibit 22.
Source: Company, JM Financial
Segment RoCE trend: Non-cig FMCG Exhibit 23.
Source: Company, JM Financial
Segment RoCE trend: Hotels Exhibit 24.
Source: Company, JM Financial
8178
8482
8788
85
77
71 7068
50
60
70
80
90
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Cigarette volume - bn sticks
FY18 cig vol lower vs 13-year ago level
2.2 2.32.8
3.0
3.5
4.1
4.8
5.76.0
6.6
1.0
2.0
3.0
4.0
5.0
6.0
7.0
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Gross sales per stick - Blended - INR
54%
59%60% 60% 60% 60%
61%
64%
35%
40%
45%
50%
55%
60%
65%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Total Segment ROCE (Consolidated) - Pre-tax
189%200%
189%178%
185%
205%
226%
289%
120%
180%
240%
300%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Segment ROCE - Cigarettes - Pre-tax Increase led by margin expansion and decline in cap employed`
-18%
-11%
-4%
0%1% 1%
0%
3%
-20%
-15%
-10%
-5%
0%
5%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Segment ROCE - Non-Cig FMCG - Pre-tax
11%
9%
4%4%
1% 1%
2% 3%
0%
3%
6%
9%
12%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Segment ROCE - Hotels - Pre-tax
ITC 29 June 2018
JM Financial Institutional Securities Limited Page 8
Segment RoCE trend: Agri business Exhibit 25.
Source: JM Financial, Company
Segment RoCE trend: Paperboards Exhibit 26.
Source: JM Financial, Company
Segment-wise annual topline and margin trends
Cigarettes segment – revenue growth and EBIT margin trends Exhibit 27.
Source: Company, JM Financial
Non-cig FMCG segment- revenue growth and EBIT trends Exhibit 28.
Source: JM Financial, Company
35%37%
45% 47%
42%41%
36%31%
0%
10%
20%
30%
40%
50%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Segment ROCE - Agribusinesses - Pre-tax
22%
23%
21%
17% 17%17%
17%18%
12%
15%
18%
21%
24%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Segment ROCE - Paperboards & Pkg - Pre-tax
15.0%14.4%
12.1%
16.8%
12.1%
4.7%
6.9%
5.3%
6.9%
0%
3%
6%
9%
12%
15%
18%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Cigarettes sales growth %
52%54%
56%
59%
63%
66% 66%67%
72%
40%
50%
60%
70%
80%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Cigarettes segment EBIT margin %
21%
23% 24%
26%
16%
11%
8% 8% 8%
0%
5%
10%
15%
20%
25%
30%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
FMCG Sales Growth %
FMCG now a INR160bn+ segment at consumer spends level; the portfolio comprises of 2 INR35bn+ brands and 3 INR10bn+ brands
-3,803
-3,315
-2,151
-889
120 312
887262
1,705
-5,000
-4,000
-3,000
-2,000
-1,000
0
1,000
2,000
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
FMCG EBIT - INR mn
FMCG EBITDA at INR4.7bn (4.2% margin)
ITC 29 June 2018
JM Financial Institutional Securities Limited Page 9
Hotels segment- revenue growth and EBIT margin trends Exhibit 29.
Source: JM Financial, Company
Agribusiness segment- revenue growth and EBIT margin trends Exhibit 30.
Source: Company, JM Financial
Paperboards, paper and packaging segment – revenue growth and EBIT margin trends Exhibit 31.
Source: Company, JM Financial
-10.5%
9.1%
0.8%
6.0%5.2% 4.9%
8.2%
4.2%
5.7%
-15%
-10%
-5%
0%
5%
10%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Hotels sales growth %
24%
27% 27%
13% 12%
4% 5%
8%10%
0%
8%
16%
24%
32%
40%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Hotels segment EBIT margin %
0.4%
22.9%
20.0%
26.4%
7.7% 8.1%
-11.0%
10.9%
-2.7%
-15%
-6%
3%
12%
21%
30%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Agri sales growth %Lower leaf tobacco output on
drought in AP in 2016, stronger INR and limited trading
opportunities in other commodities impacted sales.
12%12%
11%
10%
11% 11%
13%
11%
10%
6%
8%
10%
12%
14%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Agri segment EBIT margin %
14.6%13.4%
12.6%
9.1%
14.7%
2.2%0.9% 0.7%
-2.1%-4%
0%
4%
8%
12%
16%
20%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Paperboards sales growth %
21%
22%23%
21%
17%
17% 17%
18%
20%
12%
16%
20%
24%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Paperboards segment EBIT margin %
Margin improved on benign input costs and in-house manufacturing of pulp.
ITC 29 June 2018
JM Financial Institutional Securities Limited Page 10
ITC one-year forward PE band Exhibit 32.
Source: Company, JM Financial
0
80
160
240
320
400
Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18
22x
29x
36x
15x
ITC 29 June 2018
JM Financial Institutional Securities Limited Page 11
Financial Tables (Consolidated)
Profit & Loss Statement (INR mn) Balance Sheet (INR mn)
Y/E March FY16A* FY17A FY18A FY19E FY20E Y/E March FY16A* FY17A FY18A FY19E FY20E
Net sales 390,507 417,230 421,237 462,906 515,757 Shareholders' Fund 426,795 464,129 525,101 577,963 637,634
Sales Growth 1.6% 6.8% 1.0% 9.9% 11.4% Share capital 8,047 12,147 12,204 12,241 12,278
Other operational income 3,879 4,166 3,260 3,583 3,992 Reserves & Surplus 418,748 451,982 512,897 565,722 625,356
Total Revenue 394,386 421,395 424,498 466,489 519,749 Preference Share Capital 0 0 0 0 0
Cost of Goods Sold/Op. Exp. 138,150 154,121 148,563 166,205 185,656 Minority Interest 2,609 2,947 3,345 5,446 7,685
Personnel cost 34,410 36,317 37,609 41,190 45,738 Total Loans 838 457 359 359 359
Other expenses 77,318 76,598 73,496 75,862 79,854 Def. Tax Liab / Assets (-) 18,395 18,338 18,750 17,978 17,105
EBITDA 144,509 154,359 164,830 183,232 208,500 Total - Equity & Liab 448,637 485,872 547,555 601,747 662,783
EBITDA Margin 36.6% 36.6% 38.8% 39.3% 40.1% Net Fixed Assets 176,664 196,234 220,323 236,584 251,854
EBITDA Growth (%) 1.8% 6.8% 6.8% 11.2% 13.8% Gross Fixed Assets 161,757 180,944 199,197 229,286 260,231
Depn & Amort 10,774 11,528 12,363 13,828 15,675 Intangible Assets 0 0 0 0 0
EBIT 133,735 142,831 152,467 169,404 192,825 Less: Depn. & Amort. 10,691 22,010 33,957 47,785 63,460
Other Income 15,308 17,615 18,319 21,256 22,884 Capital WIP 25,597 37,299 55,083 55,083 55,083
Finance Cost 536 243 899 942 998 Investments 117,476 175,814 220,529 246,992 276,631
PBT before Excep & Forex 148,507 160,204 169,886 189,719 214,711 Current Assets 222,374 186,936 201,557 206,790 231,718
Excep & forex Inc/Loss(-) 0 0 4,129 0 0 Inventories 91,294 81,862 75,845 88,777 100,325
PBT 148,507 160,204 174,015 189,719 214,711 Sundry Debtors 19,172 24,743 26,823 28,535 31,793
Taxes 53,582 55,491 59,164 66,104 74,812 Cash & Bank Balances 69,943 29,686 39,215 24,671 27,393
Extraordinary Inc/Loss(-) 0 0 4,129 0 0 Loans & Advances 36,432 44,075 46,680 41,662 46,418
Assoc. Profit/Min. Int.(-) 1,480 1,818 2,139 2,018 2,147 Other Current Assets 5,534 6,571 12,995 23,145 25,788
Reported Net profit 93,445 102,894 112,712 121,597 137,752 Current Liab. & Prov. 67,877 73,111 94,853 88,619 97,421
Adjusted Net Profit 93,429 102,884 108,301 121,597 137,752 Current Liabilities 64,961 69,408 92,034 85,365 93,801
Net Margin (%) 23.7% 24.4% 25.5% 26.1% 26.5% Provisions & Others 2,916 3,703 2,820 3,254 3,620
Diluted share capital (mn) 12,071 12,147 12,204 12,241 12,278 Net Current Assets 154,497 113,825 106,704 118,171 134,297
Diluted EPS (INR) 7.7 8.5 8.9 9.9 11.2 Total – Assets 448,637 485,872 547,555 601,747 662,783
Diluted EPS Growth -3.6% 9.4% 4.8% 11.9% 12.9% Source: Company, JM Financial
Total Dividend + tax 82,326 69,447 75,772 85,118 99,181
Dividend Per Share (Rs) 5.7 4.7 5.1 5.7 6.7
Source: Company, JM Financial
(*) Financials for FY16 growth shown in above table impacted by Ind-AS transition. FY16 LTL Sales, EBITDA and EPS grew 1.6%,6% and 2.2%
Cash Flow Statement (INR mn) Dupont Analysis
Y/E March FY16A* FY17A FY18A FY19E FY20E Y/E March FY16A* FY17A FY18A FY19E FY20E
Profit before Tax 148,507 160,204 174,015 189,719 214,711 Net Margin 23.7% 24.4% 25.5% 26.1% 26.5%
Depn. & Amort. 10,774 11,528 12,363 13,828 15,675 Asset Turnover (x) 1.0 0.9 0.8 0.8 0.8
Net Interest Exp. / Inc. (-) -14,772 -17,372 -17,420 -20,315 -21,886 Leverage Factor (x) 1.1 1.0 1.0 1.0 1.0
Inc (-) / Dec in WCap. -2,770 444 17,364 -26,069 -13,503 RoE 25.1% 23.1% 21.9% 22.0% 22.7%
Others 7,030 6,386 5,368 -2,790 -3,020 Key Ratios
Taxes Paid -50,778 -54,916 -59,996 -66,045 -74,714 Y/E March FY16A* FY17A FY18A FY19E FY20E
Operating Cash Flow 97,990 106,273 131,694 88,328 117,263 BV/Share (INR) 35.4 38.2 43.0 47.2 51.9
Capex -23,402 -30,715 -27,985 -30,089 -30,945 ROIC 41.0% 37.0% 37.9% 38.0% 38.4%
Free Cash Flow 74,589 75,558 103,709 58,239 86,318 ROE 25.1% 23.1% 21.9% 22.0% 22.7%
Inc (-) / Dec in Investments -23,803 -10,749 -50,814 -26,463 -29,639 Net Debt/Equity (x) -0.4 -0.4 -0.5 -0.5 -0.5
Others 7,997 8,955 7,660 21,256 22,884 P/E (x) 34.4 31.4 30.0 26.8 23.7
Investing Cash Flow -39,208 -32,509 -71,139 -35,296 -37,701 P/B (x) 7.5 7.0 6.2 5.6 5.1
Inc / Dec (-) in Capital 5,317 10,670 9,128 7,037 7,037 EV/EBITDA (x) 21.2 19.5 18.1 16.2 14.1
Dividend + Tax thereon -61,254 -83,330 -70,884 -75,772 -85,118 EV/Sales (x) 7.8 7.2 7.1 6.4 5.7
Inc / Dec (-) in Loans 64 -95 31 0 0 Debtor days 18 21 23 22 22
Others -252 -255 -486 1,160 1,241 Inventory days 84 71 65 69 70
Financing Cash Flow -56,125 -73,010 -62,211 -67,575 -76,840 Creditor days 95 95 129 110 110
Inc / Dec (-) in Cash 2,657 754 -1,656 -14,543 2,722 Source: Company, JM Financial
Opening Cash Balance 67,286 28,932 40,871 39,215 24,671
Closing Cash Balance 69,943 29,685 39,215 24,671 27,393
Source: Company, JM Financial
ITC 29 June 2018
JM Financial Institutional Securities Limited Page 12
History of Earnings Estimate and Target Price
Date Recommendation Target Price % Chg.
21-Jul-16 Hold 265
24-Oct-16 Hold 265 0.0
26-Oct-16 Hold 265 0.0
3-Nov-16 Hold 265 0.0
14-Dec-16 Hold 265 0.0
27-Jan-17 Hold 275 3.8
1-Feb-17 Hold 285 3.6
16-Mar-17 Hold 285 0.0
21-May-17 BUY 340 19.3
26-May-17 BUY 340 0.0
30-Jun-17 BUY 350 2.9
2-Jul-17 BUY 375 7.1
27-Jul-17 BUY 315 -16.0
27-Oct-17 BUY 315 0.0
19-Jan-18 BUY 325 3.2
16-May-18 BUY 335 3.1
Recommendation History
H H H HH HHH H HH H
BB BB
B B B B
0
50
100
150
200
250
300
350
400
Jun-15 Nov-15 Apr-16 Sep-16 Feb-17 Jul-17 Dec-17 May-18
ITC
Target Price ITC
ITC 29 June 2018
JM Financial Institutional Securities Limited Page 13
APPENDIX I
JM Financial Inst itut ional Secur it ies Limited ( fo rmer l y known as JM F inanc ia l Secur i t i e s L im i ted)
Corporate Identity Number: U67100MH2017PLC296081 Member of BSE Ltd., National Stock Exchange of India Ltd. and Metropolitan Stock Exchange of India Ltd.
SEBI Registration Nos.: Stock Broker - INZ000163434, Research Analyst – INH000000610 Registered Office: 7th Floor, Cnergy, Appasaheb Marathe Marg, Prabhadevi, Mumbai 400 025, India.
Board: +9122 6630 3030 | Fax: +91 22 6630 3488 | Email: [email protected] | www.jmfl.com
Compliance Officer: Mr. Sunny Shah | Tel: +91 22 6630 3383 | Email: [email protected]
Definition of ratings
Rating Meaning
Buy Total expected returns of more than 15%. Total expected return includes dividend yields.
Hold Price expected to move in the range of 10% downside to 15% upside from the current market price.
Sell Price expected to move downwards by more than 10%
Research Analyst(s) Certification The Research Analyst(s), with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research report. Important Disclosures This research report has been prepared by JM Financial Institutional Securities Limited (JM Financial Institutional Securities) to provide information about the
company(ies) and sector(s), if any, covered in the report and may be distributed by it and/or its associates solely for the purpose of information of the select
recipient of this report. This report and/or any part thereof, may not be duplicated in any form and/or reproduced or redistributed without the prior written
consent of JM Financial Institutional Securities. This report has been prepared independent of the companies covered herein.
JM Financial Institutional Securities is registered with the Securities and Exchange Board of India (SEBI) as a Research Analyst and a Stock Broker having trading
memberships of the BSE Ltd. (BSE), National Stock Exchange of India Ltd. (NSE) and Metropolitan Stock Exchange of India Ltd. (MSEI). No material disciplinary
action has been taken by SEBI against JM Financial Institutional Securities in the past two financial years which may impact the investment decision making of
the investor.
JM Financial Institutional Securities renders stock broking services primarily to institutional investors and provides the research services to its institutional
clients/investors. JM Financial Institutional Securities and its associates are part of a multi-service, integrated investment banking, investment management,
brokerage and financing group. JM Financial Institutional Securities and/or its associates might have provided or may provide services in respect of managing
offerings of securities, corporate finance, investment banking, mergers & acquisitions, broking, financing or any other advisory services to the company(ies)
covered herein. JM Financial Institutional Securities and/or its associates might have received during the past twelve months or may receive compensation from
the company(ies) mentioned in this report for rendering any of the above services.
JM Financial Institutional Securities and/or its associates, their directors and employees may; (a) from time to time, have a long or short position in, and buy or
sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other
compensation or act as a market maker in the financial instruments of the company(ies) covered under this report or (c) act as an advisor or lender/borrower to,
or may have any financial interest in, such company(ies) or (d) considering the nature of business/activities that JM Financial Institutional Securities is engaged
in, it may have potential conflict of interest at the time of publication of this report on the subject company(ies).
Neither JM Financial Institutional Securities nor its associates or the Research Analyst(s) named in this report or his/her relatives individually own one per cent or
more securities of the company(ies) covered under this report, at the relevant date as specified in the SEBI (Research Analysts) Regulations, 2014.
The Research Analyst(s) principally responsible for the preparation of this research report and members of their household are prohibited from buying or selling
debt or equity securities, including but not limited to any option, right, warrant, future, long or short position issued by company(ies) covered under this report.
The Research Analyst(s) principally responsible for the preparation of this research report or their relatives (as defined under SEBI (Research Analysts)
Regulations, 2014); (a) do not have any financial interest in the company(ies) covered under this report or (b) did not receive any compensation from the
company(ies) covered under this report, or from any third party, in connection with this report or (c) do not have any other material conflict of interest at the
time of publication of this report. Research Analyst(s) are not serving as an officer, director or employee of the company(ies) covered under this report.
While reasonable care has been taken in the preparation of this report, it does not purport to be a complete description of the securities, markets or
developments referred to herein, and JM Financial Institutional Securities does not warrant its accuracy or completeness. JM Financial Institutional Securities
may not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.
This report is provided for information only and is not an investment advice and must not alone be taken as the basis for an investment decision.
ITC 29 June 2018
JM Financial Institutional Securities Limited Page 14
The investment discussed or views expressed or recommendations/opinions given herein may not be suitable for all investors. The user assumes the entire risk
of any use made of this information. The information contained herein may be changed without notice and JM Financial Institutional Securities reserves the
right to make modifications and alterations to this statement as they may deem fit from time to time.
This report is neither an offer nor solicitation of an offer to buy and/or sell any securities mentioned herein and/or not an official confirmation of any
transaction.
This report is not directed or intended for distribution to, or use by any person or entity who is a citizen or resident of or located in any locality, state, country
or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject JM Financial
Institutional Securities and/or its affiliated company(ies) to any registration or licensing requirement within such jurisdiction. The securities described herein may
or may not be eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession this report may come, are required to inform
themselves of and to observe such restrictions.
Persons who receive this report from JM Financial Singapore Pte Ltd may contact Mr. Ruchir Jhunjhunwala ([email protected]) on +65 6422 1888
in respect of any matters arising from, or in connection with, this report.
Additional disclosure only for U.S. persons: JM Financial Institutional Securities has entered into an agreement with JM Financial Securities, Inc. ("JM Financial
Securities"), a U.S. registered broker-dealer and member of the Financial Industry Regulatory Authority ("FINRA") in order to conduct certain business in the
United States in reliance on the exemption from U.S. broker-dealer registration provided by Rule 15a-6, promulgated under the U.S. Securities Exchange Act of
1934 (the "Exchange Act"), as amended, and as interpreted by the staff of the U.S. Securities and Exchange Commission ("SEC") (together "Rule 15a-6").
This research report is distributed in the United States by JM Financial Securities in compliance with Rule 15a-6, and as a "third party research report" for
purposes of FINRA Rule 2241. In compliance with Rule 15a-6(a)(3) this research report is distributed only to "major U.S. institutional investors" as defined in
Rule 15a-6 and is not intended for use by any person or entity that is not a major U.S. institutional investor. If you have received a copy of this research report
and are not a major U.S. institutional investor, you are instructed not to read, rely on, or reproduce the contents hereof, and to destroy this research or return it
to JM Financial Institutional Securities or to JM Financial Securities.
This research report is a product of JM Financial Institutional Securities, which is the employer of the research analyst(s) solely responsible for its content. The
research analyst(s) preparing this research report is/are resident outside the United States and are not associated persons or employees of any U.S. registered
broker-dealer. Therefore, the analyst(s) are not subject to supervision by a U.S. broker-dealer, or otherwise required to satisfy the regulatory licensing
requirements of FINRA and may not be subject to the Rule 2241 restrictions on communications with a subject company, public appearances and trading
securities held by a research analyst account.
JM Financial Institutional Securities only accepts orders from major U.S. institutional investors. Pursuant to its agreement with JM Financial Institutional
Securities, JM Financial Securities effects the transactions for major U.S. institutional investors. Major U.S. institutional investors may place orders with JM
Financial Institutional Securities directly, or through JM Financial Securities, in the securities discussed in this research report.
Additional disclosure only for U.K. persons: Neither JM Financial Institutional Securities nor any of its affiliates is authorised in the United Kingdom (U.K.) by the
Financial Conduct Authority. As a result, this report is for distribution only to persons who (i) have professional experience in matters relating to investments
falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the "Financial Promotion Order"), (ii)
are persons falling within Article 49(2)(a) to (d) ("high net worth companies, unincorporated associations etc.") of the Financial Promotion Order, (iii) are
outside the United Kingdom, or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the
Financial Services and Markets Act 2000) in connection with the matters to which this report relates may otherwise lawfully be communicated or caused to be
communicated (all such persons together being referred to as "relevant persons"). This report is directed only at relevant persons and must not be acted on or
relied on by persons who are not relevant persons. Any investment or investment activity to which this report relates is avai lable only to relevant persons and
will be engaged in only with relevant persons.
Additional disclosure only for Canadian persons: This report is not, and under no circumstances is to be construed as, an advertisement or a public offering of
the securities described herein in Canada or any province or territory thereof. Under no circumstances is this report to be construed as an offer to sell securities
or as a solicitation of an offer to buy securities in any jurisdiction of Canada. Any offer or sale of the securities described herein in Canada will be made only
under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under
applicable securities laws or, alternatively, pursuant to an exemption from the registration requirement in the relevant province or territory of Canada in which
such offer or sale is made. This report is not, and under no circumstances is it to be construed as, a prospectus or an offering memorandum. No securities
commission or similar regulatory authority in Canada has reviewed or in any way passed upon these materials, the information contained herein or the merits
of the securities described herein and any representation to the contrary is an offence. If you are located in Canada, this report has been made available to you
based on your representation that you are an “accredited investor” as such term is defined in National Instrument 45-106 Prospectus Exemptions and a
“permitted client” as such term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Under
no circumstances is the information contained herein to be construed as investment advice in any province or territory of Canada nor should it be construed as
being tailored to the needs of the recipient. Canadian recipients are advised that JM Financial Securities, Inc., JM Financial Institutional Securities Limited, their
affiliates and authorized agents are not responsible for, nor do they accept, any liability whatsoever for any direct or consequential loss arising from any use of
this research report or the information contained herein.