ICICIdirect Raises ITC FY14 Earnings Estimates; Retain `Hold`

Source from:  My Iris  10/24/2012

ITC posted better than expected Q2FY13 results with the topline growth of 19.6% YoY and earnings growth of 21.3% YoY. Cigarettes growth at 17% was driven by the aggressive price hikes taken in 2HFY12 and 1HFY13 with volumes remaining flat. ''FMCG sales growth jumped by 26.4% YoY, which we believe is 15-17% volume driven led by new launches and promotional offers. We believe that price increases across the portfolio during FY12 helped ITC (Q,N,C,F)* pull up its margins to 37.6% in Q2FY13. Going ahead, we expect cigarette volumes to gain traction in 2HFY13E and sales growth of FMCG business to sustain,'' the broking firm said. ITC took 10% price hike in August 2012 and 6% price hike in Gold Flake brand (35% of cigarette revenues) in September 2012. It believes that this higher realization aided cigarette revenues and EBIT to increase by 14% and 20.3%, respectively. Going ahead, with ITC's entry into 64mm cigarette segment and price increases to get absorbed, volume growth would gain traction. It has rolled out its 64mm cigarette (Rs 2.5- Rs 2.8) across the country and it would ward off competition (small unbranded players) in this segment by capitalizing on its brand strength and strong distribution network, it opined. ''We have increased our earnings estimates slightly for FY14E in the back of sustained margins in cigarettes, FMCG losses declining at a faster rate and improving agri-business margins. We value the stock on SOTP basis arriving at a TP of Rs 297. Maintain Hold,'' it said. Enditem