ITC - Result Analysis Q1 FY21

ITC - Result Analysis Q1 FY21

CMP: 197 (As on 27-07-2020 @ 12:01) 

Total income from operations 10,478 Cr 

12,560 Cr (-16.59%) YoY | 12,658 Cr (-17.22%) QoQ 

Year ending revenue: 51,393 Cr Vs. 48,353 Cr (6.29%) 

Net Profit of 2,567 Cr 

3,926 Cr (-34.67%) YoY 3,437 Cr (-25.33%) QoQ 

Year ending Net profit: 15,585 Cr Vs. 19,150 Cr (-18.61%) 

EPS (in Rs.) 2.04 

3.13 YoY | 2.72 QoQ 

Year ending EPS: 12.45 Vs. 10.27 

View: Result is in line with the expectation and improved in this quarter. YoY revenue declined and profit also declined in this quarter. As Hotel business income almost wiped out in this quarter and revenue was around INR 25 Cr Vs. 495 Cr in corresponding previous quarter. 

Business Updates & Highlights: 

Q1FY21 EBITDA is around INR 2,945 Cr Vs. 4,503 Cr in Q1FY20 therefore declined by 34.6% in YoY. EBITDA margin in Q1FY21 was 28.1% Vs. 36.1% in Q1FY20. 

Segment wise performance 

Cigarette revenue fell 29.1% YoY to Rs 3,853 crore. EBIT for Cigarette division was around INR 2,356 Cr and declined by 38.8% in YoY. Margin was around 61.1% Vs. 70.8% in YoY. 

FMCG business rose 10.3% to Rs 3,375 crore on YoY. EBIT for FMCG business was around INR 125 Cr and up by 60.3% in YoY. Margin was around 3.7% Vs. 2.5% in YoY. Despite Education and stationery product business (ESPB) remained impacted due to deferment of academic session across the country. FMCG-Others Segment delivered a strong performance driven by Staples, Convenience Foods and Health & Hygiene products, leveraging the strong equity of the Company’s brands and a robust portfolio of relevant and innovative products. 

For the hotels segment, that fall was a huge 94.4% to Rs 25 crore. EBIT for hotel segment was around INR (258 Cr) and declined by 2776%. Margin Nil (losses) Vs. 2.6% in YoY. Hotels Segment severely impacted with operations coming to a standstill due to restrictions on travel and hotel operations 

Agri-business revenue up by 3.9% in YOY and it was 3,746 crore. EBIT for Agri-business was around INR 179 Cr and declined by 11.4%. Margin was around 4.8% Vs. 5.6% in YoY. Up due to back of trading opportunities in oil seeds and rice. - Leveraged e-choupal network to cater to surge in wheat requirements for Aashirvaad atta. 

Paper-boards segment revenue declined 32.8% to Rs 1,026 crore. EBIT for Paper-boards segment was around INR 160 Cr and its declined by 51.1% in YoY. Margin was around 15.6% Vs. 21.6% in YoY. Paperboards, Paper & Packaging Segment performance impacted by lower offtake from end-user industries; robust growth in exports partly mitigated the weak domestic demand environment. 

Others revenue up by 6.3% and it was around INR 557 Cr. EBIT for Others segment was around INR 115 and its up by 69.1% in YoY. 

Financial 

ROE and ROCE is around 23% and 35% respectively and book value per share is around INR 53 and share is currently trading at 3.7x of its book value. Company is currently trading at annualized PE of around 19 which is slightly high as per Industry benchmark. FIIs, mutual fund and insurance cos hold around 14.6.8%, 9.5% and 21.7% in the company which was slightly declined in this quarter. The good thing is company is virtually debt free. 

Position: Share strong support price is INR 184/156. Long term investors should continue with the company with possible target of INR 230/250. Dividend yield is also around 5% of current market price. 

Share View: Share price high 272 (52 week) and now 198. ITC is one of India's foremost private sector companies and a diversified conglomerate with businesses spanning FMCG, Hotels, Paperboards and Packaging, Agri Business and Information Technology. ITC is the country's leading FMCG marketer, the clear market leader in the Indian Paperboard and Packaging industry, a globally acknowledged pioneer in farmer empowerment through its wide-reaching Agri Business, a pre-eminent hotel chain in India that is a trailblazer in 'Responsible Luxury'. ITC's wholly-owned subsidiary, ITC Infotech, is a specialized global digital solutions provider. 

Opportunities: Manufacturing of cigarettes only resumed in mid-May and currently all cigarette making units have scaled up and are operating at pre-Covid levels this segment EBIT margin is around 60% and cover more than 75% of their bottom line. The Business also introduced Gold Flake Super Star (Supermint), Gold Flake Star and Royal in the DSFT segment in competitive markets straddling key price points. 

Agri business fairely well in this quarter despite Subdued demand for leaf tobacco in international markets and adverse business mix weighed on Segment Results. The ‘ITC Master Chef’ range of Frozen Snacks posted robust growth in the retail channel. The range of Frozen Snacks was augmented with the launch of eight new exciting variants and the range was extended to 70+ cities during the quarter. 

Paper & Paper boards business Swift resumption of business ahead of competition, strong dealer network and agility in servicing customer needs aided in further strengthening market share in the Value Added Paperboards segment. 

FMCG: The Branded Packaged Foods Businesses delivered a robust performance during the quarter driven by Atta, Noodles, Biscuits and Fresh Dairy. Most major categories gained market share during the quarter. In the Staples, Snacks and Meals category, ‘Aashirvaad’ atta posted strong growth across markets. Sunfeast’ Biscuits and Cakes recorded robust growth driven mainly by surge in ‘at home’ consumption and the consumers’ preference for trusted brands. In the Dairy & Beverages category, ‘Aashirvaad Svasti’ range of fresh dairy products and ghee recorded strong growth. The range of milk products was augmented with the launch of Aashirvaad Svasti Lassi, which has received encouraging consumer response 

ITC's new Consumer Goods Businesses have established a vibrant portfolio of 25 world- class Indian brands that create and retain value in India. FMCG brands including Aashirvaad, Sunfeast, Yippee!, Bingo!, B Natural, ITC Master Chef, Fabelle, Sunbean, Fiama, Engage, Vivel, Savlon, Classmate, Paperkraft, Mangaldeep etc. 

The Personal Care Products Business recorded substantial growth in revenue driven by heightened awareness and demand for hygiene products such as hand sanitizers, handwash, antiseptic liquids and floor cleaners in the wake of COVID-19 pandemic. The portfolio was augmented with the launch of several innovative products in record time viz., ‘Savlon Surface Disinfectant Spray’, ‘Savlon Hexa’ hand sanitizing liquid, ‘Savlon Germ Protection Wipes’, Savlon Hand Sanitizer Sachet, ‘Savlon Hexa advanced’ Soap. 

Risk 

Increasing taxation on cigarettes, has caused progressive migration from consumption of duty-paid cigarettes to other lightly taxed/tax-evaded forms of tobacco products. The share of legal cigarettes in total tobacco consumption in the country has declined considerably from 21% in 1981-82 to a mere 9% (against global average of 90%). Also further levied National Calamity Contingency Duty in the month of Feb 2020. Company EBIT cover for this segment was almost 80% in this quarter and mostly company EBIT significant comes from this division and this is continuously declined in YoY and QoQ. 

FMCG business however revenue was increased in this quarter and peoples habit got changed during this quarter for essential products rather then luxurious spent but still FMCG EBIT was not significant and it’s over only 5% of bottom line and margin was also around 3.7%. 

Agri business although well in this quarter but again Leaf Tobacco subdued demand in this quarter and it can be continue with at least two quarter as well. 

Paper & Packing board business subdued off take in certain segments (e.g. liquor, cupstock, tobacco, hosiery) and significant adverse impact in others (such as publications, décor, wedding cards etc.) impacted operational performance. The demand for writing and printing paper has also been impacted due to closure of educational institutions and offices in the wake of the pandemic. This can also be continued across this FY 2021 due to ongoing pandemic

Hotels segment there are significant near-term challenges on account of the outbreak of the COVID-19 pandemic. 

Analysis: Good portfolio stock giving handsome dividends, it can be purchased at current market price for long term. 

Disclaimer: The information provided herein is based on publicly available information and other sources believed to be reliable, but involve uncertainties that could cause actual events to differ materially from those expressed or implied in such statements. The document is given for general and information purpose and is neither an investment advice nor an offer to sell nor a solicitation. While due care has been exercised while preparing this document, we do not warrant the completeness or accuracy of the information. We will not accept any liability arising from the use of this material. The recipient of this material should rely on their investigations and take their own professional advice.

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