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MOSL: ITC (Neutral)-Sales in-line-Cigarette margins affected by Kerala floods, packaging costs

ITC: Sales in-line; Cigarette margins affected by Kerala floods, packaging costs

(ITC IN, Mkt Cap USD47.6b, CMP INR281, TP INR295, 5% Upside, Neutral)

 

• ITC’s net revenue grew 7.3% YoY to INR110.7b (our estimate: INR111.4b), EBITDA rose 11.8% YoY to INR42.1b (our estimate: INR43.4b), while adj. PAT increased 11.9% YoY to INR29.5b (our estimate: INR29.9b).
• Cigarette volumes are likely to have grown by ~6%. Cigarette net sales grew 10.4% YoY. Cigarette EBIT was marginally impacted by stock damage due to floods in Kerala and some costs relating to the shift to new graphic health warnings on the packs from 1st Sep’18. Cigarette EBIT, thus, grew at a relatively slow rate of 8.7% YoY (v/s sales growth), with the margin contracting 110bp YoY to 71.2%.
• Other FMCG net sales were up 12.7% YoY to INR31.6b, with EBIT of INR585m v/s INR205m in the year-ago period. Revenues of Agri Business/Paperboards, Paper & Packaging/Hotels grew by 12.8%/8.8%/20.8%.
• Overall EBITDA margin expanded 150bp YoY to 38% (our estimate: 39%).
• 1HFY19 performance: Sales/EBITDA/adj. PAT grew by 7.4%/12%/11%. EBITDA margin expanded 160bp YoY to 38.6%. For 2HFY19, we expect sales/EBITDA/adj. PAT growth of 11.3%/12.2%/8.1%.