Stock Fundamentals

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ITC

Geojit Financial Services

While ITC’s gross sales grew by mere 6% YoY in Q4FY17, net sales grew 14% YoY driven by an 11% drop in excise duty outgo. Cigarettes business (contributes about 50% to revenue) registered a 4.8% growth YoY led as realisation rose, aided by price hikes. A neutral GST rate for cigarettes augurs well for sales volume growth and we expect this segment to grow at revenue CAGR of about 8.7% over FY17-19E.

Despite a challenging environment, non-cigarette FMCG business grew 6.5% YoY. Although this was broadly on expected lines yet the rising input costs and gestation costs on new categories (juices and dairy products) and heavy discounting in apparels impacted profitability. Hence, segment EBIT declined by 29% YoY to Rs 55.6 crore. Going ahead, we expect this segment to report a CAGR of 16% over FY17-19E led by upturn in consumer demand.

Hotel business revenue rose 7% YoY led by improvement in average room rates, agri business grew by just about 6% YoY owing to fall in wheat exports. Likewise, the paper business posted growth of only 4.4% YoY on account of sluggish demand conditions prevailing in the FMCG and legal cigarette industry.

EBITDA margin fell 212 bps YoY to 34.8% in Q4FY17 due to sluggish performance of other FMCG (EBIT Margin at 1.9% vs 2.9% in Q4FY16) and agri businesses (margin down 239 bps YoY). Although EBITDA grew 7.5% YoY yet PAT rose 12.1% YoY largely driven by higher other income (up 8% YoY) and lower tax outgo (effective tax rate at 36% vs. 34% in Q4FY16). Further, we are estimating overall EBITDA margin to expand from 36.4% in FY17 to 37.5% in FY19E led by better profitability in cigarette segment.