ITC LIMITED

Current Price:

Price (Rs) 285.15

52 W H/L(Rs) 353.20/222.05

Mkt. Cap.(Rs Cr) 347115.88

Latest Equity(Subscribed) 1217.31

Latest Reserve 44126.22

Latest EPS -Unit Curr. 8.52

Latest P/E Ratio 33.47

Latest Bookvalue -Unit Curr. 37.25

Latest P/BV 7.66

Dividend Yield -% 1.97

Face Value 1.00

VALUE PARAMETERS

` 285.15` 285.15` 285.15

STOCK DATA

BSE Code 500875

NSE Symbol ITC

Reuters ITC.BO

Bloomberg ITC IN

SHARE HOLDING PATTERN (%)

Description as on % of Holding

30/06/2017

Foreign 50.54

Institutions 35.85

Non Promoter Corp. Hold. 3.78

Public & Others 9.84

ITC Ltd.’s quarterly profit missed analyst estimates even as higher cigarette sales

pushed up the revenue.

The net sales have decreased by 1% to Rs 9945.66 crore. The Company delivered steady

performance during the quarter against the backdrop of a challenging business environment

marked by continuing pressure on the legal cigarette industry, sluggishness in demand for

FMCG products exacerbated by destocking in trade channels ahead of implementation of GST,

subdued demand conditions and unabsorbed capacity in the domestic paperboard industry and

lower crop output & adverse quality of the Andhra leaf tobacco crop due to drought in 2016. The

ban imposed by the Hon'ble Supreme Court on sale of liquor at outlets in close proximity to

highways adversely impacted some of the Company's hotel properties besides reducing offtake

of carton packaging by customers in the liquor industry.

OPM increased by 256 bps to 37.6% due to decrease in raw material cost, purchase of stock in

trade and employee cost to adjusted net sales. The operating profit inclined by 6% to Rs 3746.4

crore.

Other income increased by 13% to Rs 476.77 crore. The depreciation has increased by 3% to Rs

268.21 crore. The profit before tax (PBT) has increased by 7% to Rs 3944.58 crore.

The total tax outgo inclined by 7% to Rs 1384.08 crore. The effective tax rate was at 35%, down

from 35.11%. The net profit inclined by 7% to Rs 2560.50 crore due to increase in OPM.

Segment Results

FMCG-Cigarette

The standalone sales for Q1 FY18 grew by 7% to Rs 8774.16 crore, contributing 56% revenues.

Cigarette volumes remained muted (~2% volume growth recorded), growth was primarily led

by price hikes undertaken in previous quarter post budget. Profits before interest and tax (PBIT)

margins of the division inclined by 80 bps to 37.3%. PBIT grew by 9% to Rs 3274.14 crore. The

segment accounted for 87% of total PBIT.

1

Financial ResultsIn Cr.

Particulars Qtr Ending Qtr Ending

Jun. 17 Jun. 16 Var. (%)

Sales 9954.66 10054.04 -1

OPM (%) 37.60 35.10

OP 3746.40 3526.23 6

Other Income 476.77 420.52 13

PBIDT 4223.17 3946.75 7

Interest (Net) 10.38 10.10

PBDT 4212.79 3936.65 7

Depreciation 268.21 261.25 3

PBT 3944.58 3675.40 7

Tax 1384.08 1290.73 7

PAT 2560.50 2384.67 7

EPS 2.11 1.97

August 01, 2017

Legal cigarette industry remained under pressure due to further increase in Excise

Duty in February 2017. Revised rates of Compensation Cess announced by GST

Council w.e.f. 18th July 2017 with the intent to correct anomaly in rates notified

earlier has resulted in sharp escalation of tax incidence on cigarettes which is not in

line with the fundamental principle of maintaining revenue neutrality under the

GST regime; coupled with the increase in Excise Duty, the revised rates under the

GST regime will increase the tax burden of the Cigarette Business by over 20%.

The high incidence of taxation on cigarettes was further compounded by the steep increase in

taxes announced by the GST Council at its meeting on 17th July, 2017. The increase in

Compensation Cess on Cigarettes as announced by the GST Council ranges from Rs. 485 to Rs.

792 per thousand cigarettes. Under the 'Others' segment i.e. cigarettes of length exceeding 75

mm (including the length of filter), a 31% increase in the ad valorem component of the cess has

been levied.

Other FMCG

The standalone sales for Q1 FY18 showed a growth of 9% to Rs 2600.89 crore PBIT margins

stood at 0.2%. PBIT stood at Rs 5.43 crore.

Segment Revenue grew by 9% during the quarter amidst a muted demand environment which

was further impacted by destocking in trade channels ahead of the transition to GST w.e.f. July

1, 2017. Revenue growth was driven primarily by the Branded Packaged Foods Businesses,

Personal Care and Stationery products partially offset by the ongoing restructuring of retail

footprint and trade presence by the Lifestyle Retailing Business which also saw an early 'end of

season sale' and heavy discounting triggered by GST transition. Continued improvement in

2

Standalone Segment resultsIn Cr.

Segment Revenue Qtr Ended Qtr Ended Var. % to

Jun. 2017 Jun. 2016 (%) Total

FMCG-cigarette 8774.16 8230.60 7 56

others 2600.89 2385.15 9 16

Total FMCG 11375.05 10615.75 7 72

Hotels 304.89 287.36 6 2

Agri business 2760.52 2794.08 -1 17

Paperboard, paper & packaging 1359.82 1322.90 3 9

Total 15800.28 15020.09 5 100

Less : Inter Segment Revenue 2078.07 1863.41 12

Revenue from Operations 13722.21 13156.68 4

2. Segment Results

FMCG-cigarette 3274.14 3004.58 9 87

others 5.43 -4.52 LP 0

Total FMCG 3279.57 3000.06 9 87

Hotels 5.31 1.22 335 0

Agri business 235.11 237.31 -1 6

Paperboard, paper & packaging 257.29 247.69 4 7

TOTAL 3777.28 3486.28 8 100

Segment Results despite higher input costs, sustained investment in brand

building and gestation costs of new categories.

Branded Packaged Foods

The Branded Packaged Foods Businesses posted steady growth in revenue despite the

challenging operating environment with most major categories recording improvement in

market standing.

In the Staples, Snacks and Meals Business, Aashirvaad atta recorded healthy growth and

consolidated its leadership position across markets. In the Finger Snacks segment, the Business

has emerged as the No.1 player in the North and South market driven by the Tedhe Medhe, Mad

Angles and Tangles sub-brands. The Bingo! Yumitos range of potato chips also continued to

make impressive gains. In the Instant Noodles category, the Business launched an innovative

variant - YiPPee! Mood Masala - comprising two masala mix sachets in a pack providing the

consumer the option to add masala to 'match his mood'. The product has been well received by

consumers and is being scaled up.

In the Confections Business, the Sunfeast Mom's Magic range of premium cookies and Sunfeast

Marie sustained their growth momentum driven by superior product attributes and continuing

investment in brand building while Bounce strengthened its leadership position in the creams

segment. Portfolio premiumisation continued in the Confectionery category with higher

salience of 'Re.1 and above' products in the sales mix. During the quarter, the Business

launched a differentiated offering - Candyman Fruitee Fun Sour Slides - in the liquorice format,

receiving encouraging consumer response. The recently launched 'Candyman Tadka' in the

hard boiled candy segment, and Candyman Jellicious Jelimals & Candyman Jellicious Dubblez in

the Jellies segment gained further traction with consumers.

In the Dairy & Beverages Business, B Natural juices registered strong growth leveraging a

portfolio of differentiated products including a wide range of 'Not from Concentrate' variants

that are made directly from fruit pulp thereby providing consumers a more nutritive and natural

tasting experience. The juices portfolio was augmented during the quarter with the launch of

several first-to-market products tailored to regional tastes and preferences viz. Bael, Phalse and

Pomegranate. The recently launched '100% Not from Concentrate Pomegranate juice'

continued to garner impressive consumer franchise in the health and wellness segment.

The Fabelle range of luxury chocolates, available exclusively at Fabelle boutiques across 7 ITC

hotels, continued to receive good response from discerning consumers. Product portfolio was

strengthened further with the introduction of Rich Dark Ganache with No Added Sugar - a rich

and extremely creamy chocolate made from fine Ghana cocoa, blended with fresh cream and

butter with no added sugar. The quarter also marked the launch of a premium range of Roast &

Ground coffee under the Sunbean brand in select retail outlets. Plans are on the anvil to

progressively scale up presence in both these categories.

Personal Care Products

The Personal Care Products Business continued to focus on augmenting its product portfolio

and enriching product mix. During the quarter, the Business launched 4 exciting variants of

deodorants under the Engage Sports range designed to provide maximum freshness to

consumers, both men and women, who have an active lifestyle. The Business also launched

Vivel Lotus Oil - a unique offering enriched with Lotus Oil and Vitamin E for soft glowing skin.

The products have met with encouraging response. The recently launched Engage On pocket

perfumes and Savlon pocket hand wash in multi-use sachets designed for on-the-go

consumption have gained healthy traction with consumers. The Business continued to leverage

innovative brand campaigns and social media platforms towards deepening consumer

engagement. The recent intervention of restaging key brands anchored on Women

3

4

Empowerment in the case of Vivel and Healthy India - Healthy Children through Mission Swachh

Bharat in the case of Savlon has received positive response from consumers with significant

improvement in brand health metrics and pick-up in sales momentum. Savlon won 7 Cannes

Lions Awards at the coveted Cannes Lions 2017. Considered to be the highest global accolade

that recognises creative excellence in advertising and communications, Savlon won the

prestigious awards for its unique and innovative 'Healthy Hands Chalk Sticks' initiative. The

Business also made steady progress in the body wash (Fiama) and hand wash (Savlon)

segments.

The Businesses continue to leverage state-of-the-art integrated consumer goods

manufacturing facilities set up recently to service proximal markets in a highly efficient and

responsive manner. Over 20 projects are underway and in various stages of development - viz.

land acquisition/site development, construction of buildings, equipment installation and other

infrastructure

Hotels

The standalone sales for Q1 FY18 increased by 6% to Rs 304.89 crore aided by improvement

in Average Room Rate and healthy growth in Food & Beverage sales. PBIT margins

grew by 130 bps to 1.7%. The PBIT grew by 335% to Rs 5.31 crore. Segment Results improved

significantly as compared to the corresponding quarter in the previous year due to operating

leverage and cost management. However, improvement in profitability was limited due to loss

of revenue at certain properties (particularly ITC Grand Chola, Chennai) on account of the ban

on sale of liquor at outlets in close proximity to highways and gestation costs of the recently

commissioned ITC Grand Bharat, Gurgaon. This division contributed around 2% to total

revenue.

The Business made steady progress during the quarter in the construction of ITC Hotels at

Hyderabad, Kolkata and Ahmedabad and WelcomHotels in Coimbatore, Guntur and

Bhubaneswar.

Agri business

This division registered decrease in the standalone sales by 1% to Rs 2760.52 crore in Q1 FY18.

Agri Business Segment performance impacted by lower crop output and adverse

quality of the Andhra leaf tobacco crop due to drought in 2016 and limited trading

opportunities in other agri-commodities.. PBIT margin stood flat at 8.5%. The PBIT

decreased by 1% to Rs 235.11 crore. This division contributed around 17% to total revenue and

6% to total PBIT.

Paperboard, paper & packaging

The standalone sales grew by 3% to Rs 1359.82 crore for Q1 FY18. PBIT margin has inclined by

20 bps to 18.9%. PBIT increased by 4% to Rs 257.29 crore.. This division contributed around

9% to total revenue and 7% to total PBIT.

Paperboards, Paper and Packaging segment impacted by subdued demand in FMCG

and legal cigarette industry, lower offtake due to destocking of FMCG and Pharma

products in trade channels, unabsorbed capacity in domestic paperboard industry

and cheap imports from China and ASEAN countries. Segment Results improved on

the strength of richer product mix and benign input prices.

5

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