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ITC: Great 2QFY02 performance but… - Views on News from Equitymaster
 
 
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  • Oct 19, 2001

    ITC: Great 2QFY02 performance but…

    ITC Limited, India's tobacco major, has posted a net profit of Rs 3,336 m for the quarter ended September 30, 2001 (up 33% YoY). The company continues its relentless drive to improve operating margins even in this quarter. These margins stand at 43% (up 40 basis points YoY) in 2QFY02.

    (Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
    Net Sales 10,029 11,024 9.9% 20,089 21,503 7.0%
    Other Income 386 649 68.1% 563 913 62.1%
    Expenditure 5,752 6,288 9.3% 11,423 11,804 3.3%
    Operating Profit (EBDIT) 4,277 4,736 10.7% 8,666 9,699 11.9%
    Operating Profit Margin (%) 42.6% 43.0%   43.1% 45.1%  
    Interest 241 151 -37.1% 472 338 -28.4%
    Depreciation 291 375 28.9% 669 755 12.9%
    Profit before Tax 4,131 4,858 17.6% 8,089 9,519 17.7%
    Tax 1,615 1,522 -5.7% 3,150 3,177 0.8%
    Profit after Tax/(Loss) 2,517 3,336 32.6% 4,938 6,343 28.4%
    Net profit margin (%) 25.1% 30.3%   24.6% 29.5%  
    No. of Shares (eoy) (m) 245.4 245.4   245.4 245.4  
    Diluted Earnings per share* 41.0 54.4  40.2 51.7  
    *(annualised)            
    Current P/e ratio   12.6     13.3  

    The highlight of this performance is a 10% growth in the company's topline. The company had only managed a 4% turnover growth in the first quarter of the current year. The improvement in topline is an encouraging sign for ITC. Its other income has also improved by 68% YoY, indicating that its subsidiaries are finally contributing to its income.

    The company has regrouped some figures for last year. As per the regrouped figures, the net profit in 2QFY01 is 2,586 m. Thus the bottomline growth YoY becomes 29% as per this number. The company's moves to reduce its debt is bearing fruit. Its interest burden has gone down by 37% during the quarter. Its tax provision has declined due to a tax write back this quarter.

    Cost break-up
    (Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
    Material cost 3,256 3,671 12.7% 6,819 6,989 2.5%
    Staff cost 708 599 -15.3% 1,340 1,214 -9.4%
    Other exp. 1,788 2,018 12.9% 3,264 3,601 10.3%
    Total expenses 5,752 6,288 9.3% 11,423 11,804 3.3%

    ITC has approved the amalgamation of ITC Bhadrachalam Paperboards with the company, with effect from April 1, 2001. The merger ratio has been fixed at one equity share of ITC for every 16 shares of ITC Bhadrachalam. For details of the financial effects of this move read ITC: Merger concerns

    ITC's current performance is heartening as the company has once again shown that it knows its business quite well and its improving operating efficiency is a testimony to this. The rise in other income has also given rise to hopes of that its investments in hotels and retailing may be bearing fruit.

    However, ITC's moves to merge with ITC Bhadrachalam would change its earnings outlook and thus is earnings ratings. There is every likelyhood that in future ITC would also merge ITC Hotels with itself. Though these moves are in the right direction given the company's increasing focus and investments on hotels, paperboards, IT and retailing, these would make it a diversified company in the long run. Thus, in future, its consolidated operating margins would deflate and so would its ratings.

    At the current price of Rs 687 ITC trades at a P/E of 13x annualised FY02 earnings (excluding ITC Bhadra numbers). We have yet to incorporate the merger effects in our projections.

     

     

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