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MOSL: ITC (Neutral)-Gloom receding, but improvement to be gradual

ITC: Gloom receding, but improvement to be gradual

(ITC IN, Mkt Cap USD51.2b, CMP INR286, TP INR295, 3% Upside, Neutral)

 

• ITC's 4QFY18 net revenue declined 4.8% YoY (est. of flat revenue) to INR105.9b (est. of INR111.5b), EBITDA grew 6.9% YoY to INR41.4b (est. of INR40.7b), while adj. PAT increased 9.9% YoY to INR29.3b (est. of INR28.5b).
• Cigarette volume decline is likely to have been ~2% YoY. Calculated cigarette revenue declined ~4.3% YoY, while cigarette EBIT grew ~8% YoY (~800bp expansion of EBIT margin). There have been no price increases over the past 4-5 months, particularly as the budget left taxes on cigarettes unchanged. However, there is a risk of a change in cigarettes rates in the subsequent GST Council meetings.
• Other FMCG sales rose 6% YoY (est. of +7%) to INR30.5b, with EBIT of INR912m, higher than INR556m in 4QFY17, led by enhanced scale, mix and cost efficiencies.
• Agri revenue declined 5.7% YoY, while Paper and Hotels revenue grew 0.4% and 5.6%, respectively. Margin in Paper business was flat YoY at 18.6%, while Agri EBIT margin contracted 20bp YoY to 6.9%.
• FY18 performance: Sales, EBITDA and adj. PAT grew 1.3%, 6.6% and 7.4%, respectively. EBITDA margin expanded 190bp to 38.3%.