Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
ITC: Bhadrachalam blues - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • May 22, 2002

    ITC: Bhadrachalam blues

    Tobacco major, ITC Limited, has finally declared its FY02 numbers. The numbers also include the fourth quarter performance of its newly amalgamated paperboard subsidiary, ITC Bhadrachalam. Consequently, the merged entity has recorded a 20% growth in topline YoY and an 18% growth in bottomline in FY02. However, YoY numbers are not comparable.

    (Rs m) 4QFY01 4QFY02 Change FY01 FY02 Change
    Gross Sales 22,598 29,617 31.1% 88,271 99,824 13.1%
    Net Sales Turnover 10,898 17,137 57.2% 42,081 50,592 20.2%
    Other Income 616 234 -62.0% 1,445 1,424 -1.5%
    Expenditure 6,571 12,209 85.8% 25,164 31,560 25.4%
    Operating Profit (EBDIT) 4,327 4,928 13.9% 16,917 19,033 12.5%
    Operating Profit Margin (%) 39.7% 28.8%   40.2% 37.6%  
    Interest 237 217 -8.4% 959 669 -30.2%
    Depreciation 365 827 126.4% 1,399 1,985 41.8%
    Profit before Tax 4,342 4,118 -5.1% 16,003 17,803 11.2%
    Tax 1,571 1,156 -26.4% 5,940 5,905 -0.6%
    Profit after Tax/(Loss) 2,771 2,962 6.9% 10,063 11,897 18.2%
    Net profit margin (%) 25.4% 17.3%   23.9% 23.5%  
    No. of Shares (eoy) (m) 245.4 247.5   245.4 247.5  
    Earnings per share* 45.2 47.9   41.0 48.1  
    Current P/e ratio   13.0     12.9  

    ITC had recorded a 7.4% topline growth in the first nine months of FY02. This is probably a more realistic topline growth number for the tobacco major on a like to like basis. Based on these estimates, it seems that the ITC Bhadrachalam merger has added around Rs 5.3 bn to ITC's 4QFY02 and FY02 topline numbers. This Rs 5.3 bn is ITC Bhadra's full year FY02 topline.

    Though ITC has managed to add significantly to its topline post ITC Bhadra merger, a similar jump in bottomline is not reflected in the consolidated performance. In fact, ITC has hardly shown any bottomline growth in 4QFY02 YoY. But this may be because the fourth quarter has had to absorb the full impact of ITC Bhadra's FY02 numbers. The annual numbers give a more reasonable picture.

    Cost break-up
    (Rs m) 4QFY01 4QFY02 Change FY01 FY02 Change
    Material cost 3,773 7,245 92.0% 14,924 18,904 26.7%
    Staff cost 788 1,200 52.4% 2,744 3,111 13.3%
    Other exp. 2,010 3,764 87.3% 7,496 9,545 27.3%
    Total expenses 6,571 12,209 85.8% 25,164 31,560 25.4%

    In our earlier coverage, we had warned that the merger of ITC Bhadra with ITC is likely to impact the company's robust operating margins. And so it has. The dominance of ITC in the branded Indian cigarette market (70% share) has ensured immense pricing power for the company, despite punitive goverment taxation policies. Moreover, over the years ITC has managed to improve its overall efficiencies thus resulting in operating margins of nearly 40% for the company.

    However, post the ITC Bhadra merger, it operating margins seem under pressure. OPM has slumped from 40% in FY01 to around 38%. A higher OPM was largely the reason that ITC in the past has been able to report above 20% bottomline growth consistently over the years, even in difficult economic conditions.

    This was one of the reasons why the stock has languished on the bourses, despite being priced at a discount ot its peers in terms of valuations. At Rs 621 the stock trades on a P/E of 13x FY02 earnings. There is no doubt that ITC has a strong and dominant tobacco business. The management knows this business in and out. However, because of the pressure the company is facing in terms of government's punitive taxation policies as well as the growing public apathy towards tobacco, it has been investing in other businesses, which are not as lucrative.

    Going forward, ITC's valuations will again have to weather the ITC Hotels merger plans. Though the management has said nothing on this issue as yet, sooner or later ITC Hotels is going to come into the books of ITC Limited. The company has declared a dividend of Rs 13.5 per share.



    Equitymaster requests your view! Post a comment on "ITC: Bhadrachalam blues". Click here!


    More Views on News

    ITC: Demonetisation woes pull down business growth (Quarterly Results Update - Detailed)

    Feb 8, 2017

    ITC Ltd has announced third quarter results of the financial year 2016-2017 (3QFY17). The company has reported 4.7% YoY and 5.7% YoY growth in revenues and net profits respectively. Here is our analysis of the results.

    ITC: A Decent Quarter Amidst Challenging Environment (Quarterly Results Update - Detailed)

    Dec 7, 2016

    ITC has announced second quarter results of the financial year 2016-2017 (2QFY17). The company has reported 8% YoY and 10.5% YoY growth in revenues and net profits respectively.

    GSK Consumer: On the Recovery Path (Quarterly Results Update - Detailed)

    Jun 20, 2017

    While GSK consumer reported muted revenue growth, volumes are seen to be recovering.

    ITC: Numbers Go Nowhere in FY16... (Quarterly Results Update - Detailed)

    Jun 8, 2016

    ITC declared results for the quarter and year ended March 2016. During the year, the company's net revenues and profits rise by 1% YoY and 3% YoY respectively.

    ITC: A Flat Performance (Quarterly Results Update - Detailed)

    Jan 30, 2016

    ITC announced its results for the quarter ended December 2015. While revenues were up by 3% YoY, profits came in higher by 9% YoY.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 21, 2017 01:52 PM


    • Track your investment in ITC LTD with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks


    Detailed Quarterly Results With Charts