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ITC FY01: Volume concerns - Views on News from Equitymaster
 
 
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  • May 30, 2001

    ITC FY01: Volume concerns

    Tobacco major, ITC Limited, has declared a 27% growth in bottomline in FY01, backed by a 9.4% growth in net turnover. The performance was more or less in line with our expectations.

    (Rs m) 4QFY00 4QFY01 Change FY00 FY01 Change
    Net Sales Turnover 10,267 10,886 6.0% 38,436 42,042 9.4%
    Other Income 411 518 26.1% 1,576 1,374 -12.8%
    Expenditure 7,014 6,571 -6.3% 24,876 25,164 1.2%
    Operating Profit (EBDIT) 3,487 4,315 23.8% 13,560 16,878 24.5%
    Operating Profit Margin (%) 33.2% 39.6%   35.3% 40.1%  
    Interest 223 127 -43.3% 1,661 849 -48.9%
    Depreciation 310 366 17.9% 1,185 1,399 18.1%
    Profit before Tax 3,121 4,342 39.1% 12,290 16,003 30.2%
    Tax 1,422 1,379 -3.1% 4,365 5,940 36.1%
    Profit after Tax/(Loss) 1,699 2,963 74.4% 7,925 10,063 27.0%
    Net profit margin (%) 16.2% 27.2%   20.6% 23.9%  
    No. of Shares (eoy) (m) 245.4 245.4   245.4 245.4  
    Earnings per share* 27.7 48.3   32.3 41.0  
    *(annualised)           
    Current P/e ratio         19.1  

    The company's fourth quarter results saw a huge 43% decline in interest costs, which resulted in a 74% jump in 4QFY01 net profits YoY. However, the company's turnover growth saw a slowdown to 6%. The net turnover growth of the company during the previous nine months of FY01 was around 11.5%.

    Due to the turnover slowdown in 4QFY01, ITC's overall turnover growth slipped to around 9% in FY01. It seems that ITC's decision to pass on the excise hike met with resistance in the market. Some consumers (particularly in the high end filter segment) may have switched to foreign brands which had become more competitively placed vis-a-vis ITC's brands. However, the volume details of cigarette sales are not known as yet.

    However, despite the concerns on the sales side, the company has managed to record an attractive bottomline growth. This was largely on account of turnover growing at a faster clip than expenditure. As a result, ITC's operating margins improved by 480 basis points to over 40% in FY01.

    The company has hiked the dividend per share to Rs 10 (Rs 7.5 per share in FY00). ITC's dividend payout has also gone up from 23.2% in FY00 to 24.4% in FY01.

    At the current price of Rs 784 the stock trades at a P/E multiple of 19.1x its FY01 earnings and at 16.9x as per our FY02 earnings estimates. The stock has been stuck around this valuation for quite some time given the uncertainty over its future growth especially in its non-cigarette businesses. Historically, ITC has always managed to hold onto its market share in cigarettes even in adverse conditions and if it manages to do so this time around also, only then will the company see better valuations.

     

     

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