Recommendation From Cigarettes,Tobacco Products Sectors

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year

ITC 

BSE Code: 500875
CMP: Rs 296.60
FV: Rs 1
BSE Volume: 475,576 

REAP THE BENEFITS OF DIVERSIFICATION WITH ITC 

HERE IS WHY
Differentiated product development capacity
Robust portfolio of brands
Efficient marketing and distribution network 

ITC is a conglomerate boasting a vibrant portfolio of businesses encompassing FMCGs, hotels, paperboards and specialty papers, packaging, agri-business and IT. 

On the standalone quarterly front, total income from operations rose to Rs 11,272.51 crore in Q2FY19 as against Rs 9,763.92 crore in Q2FY18, thereby rising 15.45 per cent. EBITDA reached Rs 4,205.97 crore in Q2FY19 in comparison to Rs 3,211.3 crore in Q2FY18, posting a growth of 30.97 per cent. Net profit climbed to Rs 2,954.67 crore in Q2FY19 from Rs 2,639.84 crore in Q1FY18, registering an increase of 11.92 per cent. Basic EPS rose to Rs 2.42 in Q2FY19 from Rs 2.17 in Q2FY18. 

On the consolidated annual front, total income from operations soared to Rs 43,448.94 crore in FY18 versus Rs 42,803.61 crore in FY17, thereby rising 1.50 per cent. EBITDA reached Rs 16,482.96 crore in FY18 from Rs 15,435.91 crore in FY17, posting a growth of 6.78 per cent. Net profit increased to Rs 11,271.20 crore in FY18 from Rs 10,289.44 crore in FY17, registering a growth of 9.54 per cent. Basic EPS reached Rs 9.26 in FY18 versus Rs 8.50 in FY17. 

The company struggled under several challenges, particularly the sharp climb in tax incidence on cigarettes under the GST regime. Even then, ITC’s cigarette segment posted robust volume growth of 6 per cent in Q2FY19. Cigarette volumes had grown 1.5 per cent in Q1FY19 after three consecutive quarters of volume de-growth. The FMCG sector experienced subdued demand and disruptions in the supply chain. The scanty availability of leaf tobacco in Andhra Pradesh, rapid deterioration of the Indian rupee against the US dollar and the dearth of trading opportunities in agri-commodities hampered the performance of the agri business. Despite an improvement in room rates, the ban on sale of liquor at outlets in the vicinity of highways in H1FY18 impacted the hotel business. Furthermore, the paperboards, paper and packaging business was also hindered due to the unabsorbed capacity in the value-added paperboard segment. 

The company's overall sales growth of 7.3 per cent was supported by the sales growth of 12.7 per cent, 12.8 per cent, 8.8 per cent and 20.8 per cent in FMCG, agri business, paperboard and hotels, respectively. Some of the newly launched products include Dermafique, Fiama, Charmis, and Nimyle. The growth drivers for the non-cigarette business include backward integration, large appetite to spend on brand investments and pan-India distribution. The education and stationery products business is benefiting substantially on account of government initiatives to enhance literacy and improve the quality of education. 

The company’s first overseas project is being undertaken by its wholly-owned subsidiary in Sri Lanka. ITC forayed into Goa’s markets by acquiring the Park Hyatt Goa Resort & Spa on September 19, 2018. Owing to its positive financials and prudent management, we recommend our reader-investors to BUY this stock.