Tobacco major, ITC Limited, has reported over 4% net revenue growth and just over 12% bottomline growth in 2QFY04. As per the company's release, adjusting for a one-off basmati export opportunity last year (worth Rs 1,920 m), the underlying net turnover was up nearly 17% YoY.
Operating Profit (EBDIT)
Operating Profit Margin (%)
Profit before Tax
Profit after Tax/(Loss)
Net profit margin (%)
No. of Shares (eoy) (m)
Diluted Earnings per share (Rs)*
Current P/e ratio (x)
As per the management's statement, the cigarette industry continued to be under pressure in the wake of state level taxes and growing contraband trade. However, the current quarter saw the company extend its market coverage owing to the recently launched brands such as Insignia and Wills Silk Cut. The cigarette revenues were up 3.5% for the quarter and the profitability of this segment improved YoY to nearly 23%.
Paperboards, paper & packaging
Less: Inter segment revenues
On the retailing front, ITC's foray into the mid priced shirting under the John Players brand name now extends to nearly 2,800 outlets. The branded packaged foods business saw the company's entry into the biscuits market under the Sunfeast brand. In confectionery, the company's mint brand 'Minto' seems to be doing well. The company has pegged its market share at 40%. As a result of all this, the company's other FMCG category, which comprises of all the above segments, grew by over 360% YoY (on a smaller base) to nearly Rs 750 m. Also, the segment's loss margins have reduced, which is an encouraging trend.
The company's hotel revenues were up over 40% to Rs 566 m during the quarter. The business continued to improve on the profitability front (PBIT margin of 2.5%). However, the segment's profitability would have been better, but for ITC Sonar Bangla's depreciation and gestation costs. ITC continues to ramp up its e-choupal initiative (IT backed rural distribution and sourcing infrastructure). Currently, it has 2,600 installations, reaching more than 1.5 m farmers in 13,000 villages in states like AP, MP, UP, Maharashtra and Karnataka.
PBIT as a % of sales
Paperboards, paper & packaging
ITC seems to have done well in its non-tobacco businesses like hotels, packaged foods and even readymade shirting. These initiatives seem to given a leg up to the company's topline growth. However, at the profit level, it seems that none of the new businesses have really added to the company's profitability. Profits still seem to be coming from tobacco, agri and paperboards business. In that sense, the company's diversification strategy seems to be working, wherein topline comes from new initiatives, while getting support at profit level from established businesses.
At Rs 860, the stock trades at nearly 13x annualised 1HFY04 earnings and market cap to sales of 3.6x. In our view, ITC has been aggressive to shore up its non-tobacco businesses. It has done quite well to emerge as one of the largest hotel majors in country. Its entry into staple foods and biscuits is also a sign of its relative aggressiveness when compared to other already established players. The company's e-choupal initiative is also likely to pay dividends in the long term. However, the company's promoter (BAT) may not view the company's diversifications from tobacco favourably over the long term.
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.
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: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407