MOSL: ITC (Neutral)-Cigarette volumes to be impacted by GST-led price hikes in 2QFY18
ITC: Cigarette volumes to be impacted by GST-led price hikes in 2QFY18
(ITC IN, Mkt Cap USD56.1b, CMP INR289, TP INR280, 3% Downside, Neutral)
ITC's 1QFY18 net revenue declined 1.0% YoY (est. of +4%) to INR99.5b. Gross sales were up 4.3% YoY, but net sales declined 0.8% YoY due to high excise duty. Reported excise duty is based on manufactured goods; however, actual sales being lower during the quarter, excise duty as % of gross sales appeared higher in 1QFY18. EBITDA margin expanded 260bp YoY (est. of -50bp). EBITDA thus grew 6.2% YoY (est. of +2.5%) to INR37.5b. Adj. PAT rose 7.4% YoY (est. of +6.2%) to INR25.6b.
Cigarette volumes grew ~1% YoY, which is slightly better than our estimate of a 2% decline, aided by good growth in the sub-65mm segment. Gross cigarette revenue grew 6.6% YoY, while calculated net sales declined 1.7% YoY due to unusually high excise duty. Cigarette EBIT grew 9% YoY (80bp EBIT margin expansion on gross sales). Cigarette business is likely to be again impacted in 2QFY18 by post-GST price hikes. The company had taken a price hike of 4% in the DSFT segment and 8% in the KSFT segment after the revised GST rates announcement.
FMCG - Others sales were up 9% YoY (est. of +4%) to INR26b, with EBIT of INR54m v/s INR45m loss in 1QFY17. Hotels and Paper revenues grew by 6.1% and 2.8%, respectively, while Agri business saw 1.2% YoY decline.
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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