Posts better-than-expected results; analysts have raised their earnings estimate and price target.
While ITC’s stock has underperformed the markets in the last one year, the company has posted better-than-expected results for the December 2009 quarter. The stock has delivered 1 per cent returns as against the Sensex’s 6 per cent fall since January 21, partly due to its defensive attributes.
ITC’s net sales growth of 18.2 per cent year-on-year (at Rs 4,532 crore) was driven by strong performance of its agri as well as non-cigarette FMCG and paper & packaging businesses. These three were also behind higher profit growth.
For instance, even as ITC continues to invest to expand its non-cigarette FMCG businesses like personal products, this business’ loss declined by nearly a third to Rs 86 crore (sales were higher by 24 per cent at Rs 892 crore).
Here, barring any launch, analysts expect profitability to improve and the business to break even by 2011-12.
In agri business, higher volumes and better realisations, especially of leaf tobacco in international markets, led to a 46 per cent rise in revenues to Rs 905 crore while its profit before interest and tax (PBIT) jumped 107 per cent to Rs 104 crore. In the paper & packaging business, higher capacity utilisation and lower cost of inputs like pulp were among the key reasons for the 81 per cent rise in profit to Rs 201 crore — gross PBIT margins at nearly 24 per cent were at all-time high.
ITC’s cigarette business, which accounted for the lion’s share (over 50 per cent of net sales and 80 per cent of profits), reported an impressive 7-8 per cent rise in volumes — the highest in more than 10 quarters.
Along with better realisations, revenues grew 13.4 per cent to Rs 4,423 crore, while PBIT was up 15.5 per cent to Rs 1,310 crore. The only dull spot was the hotel business, which due to subdued economic environment reported flat revenues and 16 per cent year-on-year drop in profit. The ongoing economic recovery and improving room rents and occupancy levels should help the business do better.
On the whole, ITC’s quarterly performance was driven by healthy volume growth and better cost management, which led to nearly 23 per cent rise in operating profits to Rs 1,660 crore. Although a spurt in other income helped, net profits were up an impressive 26.7 per cent year-on-year to Rs 1,144 crore.
Analysts have raised their earnings’ estimate and price target for ITC’s stock (to Rs 285-305) post the results as they believe that any sharp increase in duties (excise or VAT) on cigarettes could dampen sentiments. At Rs 245.20, the stock trades at 19.6 times its estimated 2010-11 earnings per share of Rs 12.53.
