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ITC – Smoking Profits – Dividend + Bonus

May 22, 2010

ITC India’s leading Tobacco Giants reported PAT at Rs10.28bn. Despite steady cigarette profitability and lower losses in other FMCG segment, EBITDA margins contracted ~150bps YoY to 30.5%, reflecting lower margins of agri business (revenues surged to ~Rs10bn, Rs2.5bn ahead of expectations, but mix deteriorated). Paper profitability was a tad lower.

Volumes rose 8.5% YoY, driving 14% YoY revenue growth. Margins expanded ~30bps YoY. Weighted avg. price hikes of ~13-15% in the last 3 months would aid revenue growth. After a ~8% growth in volumes in FY10, we forecast 2%/4% volume growth in FY11/12E respectively. Volumes may be buoyed by the potential introductions in <60mm filter segment (currently in the test marketing stage); however it may impact mix. Other FMCG revenues rose 35% YoY to Rs11.3bn. Encouragingly, EBIT loss was Rs780m declined 33% YoY & 9% QoQ. Mgmt expects ~25% revenue growth & 20% decline in losses in FY11E; expects segment break even in FY12E. Personal care (PC) revenue run rate for is nearing ~Rs400m/month- mgmt expects PC break even in FY13E once overall market share is ~10% & gross profits offset brand building. Mgmt is considering a special dividend (Rs5.5/share), in addition to Rs4.5 dividend for FY10. The company is contemplating issue of bonus shares in a Board Meeting on 18 June. ITC EPS Estimates for FY 11 and FY 12 and Price Target
HSBC – 13.08 and 15.04 with target of 315
Citi 12.75 and 14.67 with target of 302
BOFA Merrill 12.91 and 15.08 with a target of Rs 300
Morgan Stanley 12.24 and 14.32 with a target of Rs 301

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