MOSL: ITC (BUY)-Neutral GST rates boost volume growth prospects
​ITC: Neutral GST rates boost volume growth prospects; Maintain Buy
(ITC IN, Mkt Cap USD57.4b, CMP INR309, TP INR355, 15% Upside, Buy)
- 4QFY17 performance better than expectations: Net revenues rose 14.0% YoY (est. of +1.3%) to INR111.3b. Gross sales were up 6.2% YoY, but net sales growth was even higher due to an 11.4% YoY decline in excise duty. Higher inventory in the system ahead of pictorial warning implementation had resulted in higher excise in the base quarter. EBITDA margin contracted 210bp YoY (est. of -50bp) in 4QFY17. EBITDA still increased 7.5% YoY to INR38.8b (est. of flat growth), while adj. PAT grew 12.1% YoY (est. of +8.4%) to INR26.7b.
- We reckon cig volumes were flat YoY (better than est. of -4%), aided by higher growth in the sub-65mm segment. There also seems to be some initial adverse impact of price increase in Gold Flake and Navy Cut toward December 2016. Gross cigarette revenue grew 4.8% YoY, while calculated net sales rose 21.1% YoY owing to the unusually high excise base of last year. Cigarette EBIT grew 8% (110bp expansion of EBIT margin on gross sales).
- Other FMCG net sales were up 6.5% YoY to INR28.8b (est. of +4%), but the segment reported EBIT margin contraction due to higher wheat/sugar costs. Agri, Hotels and Paper revenue grew 6.2%, 6.5% and 5.5% YoY, respectively
ITC is a diversified manufacturing and marketing company which is based in India. Co. maintains an operating presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Personal Care, Stationery, Safety Matches and other FMCG products. While Co. is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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