ITC 2QFY01: Maintaining momentum - Views on News from Equitymaster

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ITC 2QFY01: Maintaining momentum

Oct 27, 2000

Tobacco major ITC Limited has logged in a 22% growth in its 2QFY01 net profits to Rs 2,517 m. This jump is on the back of a 6% net turnover growth during the same period. The company margins also went up from 21.9% in 2QFY00 to 25.1% in the current quarter. ITC's pays more than 50% of its revenues as excise duty. The company's gross income during the first quarter is actually Rs 22 bn, but the excise duties have more than halfed its net sales turnover to Rs 10 bn.

(Rs m) 2QFY00 2QFY01 Change 1HFY00 1HFY01 Change
Gross Income 19,918 21,617 8.5% 39,272 43,054 9.6%
Net Sales Turnover 9,445 10,029 6.2% 18,328 20,089 9.6%
Other Income 358 386 7.7% 534 563 5.5%
Expenditure 5,880 5,752 -2.2% 11,323 11,423 0.9%
Operating Profit (EBDIT) 3,565 4,277 20.0% 7,004 8,666 23.7%
Operating Profit Margin (%) 37.7% 42.6%   38.2% 43.1%  
Interest (Net) 327 241 -26.5% 642 472 -26.6%
Depreciation 262 291 11.2% 561 669 19.1%
Profit before Tax 3,335 4,131 23.9% 6,334 8,089 27.7%
Tax 1,267 1,615 27.4% 2,331 3,150 35.1%
Profit after Tax/(Loss) 2,067 2,517 21.7% 4,003 4,938 23.4%
Net profit margin (%) 21.9% 25.1%   21.8% 24.6%  
No. of Shares (eoy) (m) 245.4 245.4   245.4 245.4  
Earnings per share* 33.7 41.0   32.6 40.2  
*(annualised)            
Current P/e ratio   18.7        

ITC Limited is India’s No. 1 cigarette and tobacco company. It commands 65-70% share of the Rs 80 bn Indian cigarette market. It also has presence in the hospitality sector and packaging through its subsidiaries. The company has identified infotech (IT) and sports wear retailing as its future growth areas.

On a half yearly basis, the company has shown a 23% net profit growth over 1HFY00. Its turnover has grown by 10% during this period. The company has focused on improving its cost efficiencies. Its expenditure declined by a minor 2% during the quarter, but overall in the first half the company's expenditure saw a minor 1% increase.

Another reason for ITC's bottomline growth is lower interest outgo. In the last quarter (i.e. 1QFY01) ITC's net interest outgo declined by 27%. During this quarter too, the net interest outgo declined by 27%.

The company's core business is being adversely affected by the punitive taxation policies and also the public ban on smoking by some state governments'. But the company's increasing focus on its hotel, packaging, sport wear retailing and information technology (IT) business is aimed to provide a cushion against a drastic fall in the company's tobacco business. However, we continue to see ITC maintain its market leadership position in this segment. With its huge cash flows the company stands a good chance to consolidate in the other businesses too.

At the current market price of Rs 767, ITC quotes at a PER of 18.7 times its 2QFY01 annualised earnings. Given its improved performance in 1HFY01, and also ITC's future investment plans, the stock might see some positive activity in the days to come. But a lot will also depend on the company's success ratio in its other businesses.


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