EQUITY RESEARCH REPORT: ITC
DATE: 13/06/2014
INDUSTRY: FMCG BSE code: 500875 NSE code: ITC Current Price: Rs 332.60 Target Price: Rs380 52 week high/low: Rs380/281
CALL: BUY
An Overview on FMCG Sector
The fast-moving consumer goods (FMCG) sector is an important contributor to
Indias GDP and it is the fourth largest sector of the Indian economy. The Indian
FMCG sector has a market size of `2 trillion with rural India contributing to one third
of the sectors revenues.
The Indian FMCG sector is highly fragmented, volume driven and characterized by
low margins. The sector has a strong MNC presence, well established distribution
network and high competition between organized and unorganized players. FMCG
products are branded while players incur heavy advertising, marketing, packaging
and distribution costs.
Industry Facts
The Indian FMCG industry represents nearly 2.5% of the countrys GDP.
The industry has tripled in size in past 10 years and has grown at ~17%CAGR in the
last 5 years driven by rising income levels, increasing urbanisation, strong rural
demand and favourable demographic trends.
The sector accounted for 1.9% of the nations total FDI inflows in April 2000-
September 2012. Cumulative FDI inflows into
India from April 2000 to April 2013 in the food processing sector stood at `9,000.3
crore, accounting for 0.96% of overall FDI inflows while the soaps, cosmetics and
toiletries, accounting for 0.32% of overall FDI at `3,115.5 crore.
Food products and personal care together make up two-third of the sectors
revenues.
Industry Facts
The Indian FMCG industry represents nearly 2.5% of the countrys GDP.
The industry has tripled in size in past 10 years and has grown at ~17%CAGR in the
last 5 years driven by rising income levels, increasing urbanisation, strong rural
demand and favourable demographic trends.
The sector accounted for 1.9% of the nations total FDI inflows in April 2000-
September 2012. Cumulative FDI inflows into
India from April 2000 to April 2013 in the food processing sector stood at `9,000.3
crore, accounting for 0.96% of overall FDI inflows while the soaps, cosmetics and
toiletries, accounting for 0.32% of overall FDI at `3,115.5 crore.
Food products and personal care together make up two-third of the sectors
revenues.
Rural India accounts for more than 700 mn consumers or 70% of the Indian
population and accounts for 50% of the total FMCG market. With changing lifestyle
and increasing consumer demand, the Indian FMCG market is expected to cross $80
bn by 2026 in towns with population of up to 10 lakh.
India's labor cost is amongst the lowest in the world, after China & Indonesia, giving
it a competitive advantage over other countries.
Unilever Plc's $5.4 billion bid for a 23% stake in Hindustan Unilever is the largest Asia
Pacific cross border inbound merger and acquisition (M&A) deal so far in FY14 and is
the fifth largest India Inbound M&A transaction on record till date.
Excise duty on cigarette has been increased in the Union Budget for 2013-14, which
would hit major industrial conglomerates like ITC, VST Industries in the short term.
Opportunities in FMCG Sector
Untapped rural market
India is one of the worlds biggest producers of a number of FMCG products but the
countrys exports account for a very small proportion of the overall output.
Food-processing Industry: With 200 mn people expected to shift to processed and
packaged food, India needs around USD 30 bn of investment in the food processing
industry.
Key Concerns for the sector
High inflation
Rising cost of inputs
Emergence of private labels
Counterfeits and pass-offs
Rupee depreciation may hit margins of companies
Infrastructure bottlenecks
History
ITC was incorporated on August 24, 1910 under the name Imperial Tobacco
Company of India Limited. As the Company's ownership progressively Indianised, the name
of the Company was changed from Imperial Tobacco Company of India Limited to India
Tobacco Company Limited in 1970 and then to I.T.C. Limited in 1974. In recognition of the
Company's multi-business portfolio encompassing a wide range of businesses - Fast Moving
Consumer Goods comprising Foods, Personal Care, Cigarettes and Cigars, Branded Apparel,
Education and Stationery Products, Incense Sticks and Safety Matches, Hotels, Paperboards
& Specialty Papers, Packaging, Agri-Business and Information Technology - the full stops in
the Company's name Ire removed effective September 18, 2001. The Company now stands
rechristened 'ITC Limited, where ITC is today no longer an acronym or an initialised form.
Key Members
Chairman - Y C Deveshwar
Executive Directors - Nakul Anan
- P V Dhobale
- K N Grant
Timeline
1925: Packaging and Printing: Backward Integration
1975: Entry into the Hospitality Sector - A 'Ilcom' Move
1979: Paperboards & Specialty Papers - Development of a Backward Area
1985: Nepal Subsidiary - First Steps beyond National Borders
1990: Paperboards & Specialty Papers - Consolidation and Expansion
1990: Agri Business - Strengthening Farmer Linkages
2002: Education & Stationery Products - Offering the Greenest products
2000: Lifestyle Retailing - Premium Offerings
2000: Information Technology - Business Friendly Solutions
2001: Branded Packaged Foods - Delighting Millions of Households
2002: Agarbattis & Safety Matches - Supporting the Small and Cottage Sector
2005: Personal Care Products - Expert Solutions for Discerning Consumers
2010: Expanding the Tobacco Portfolio
Company Information
ITC Limited Date of Listing (NSE) : 23-Aug-1995
Face Value : 1.00
ISIN : INE154A01025
Industry : CIGARETTES
Constituent Indices : CNX CONSUMPTION,CNX NIFTY,CNX FMCG INDEX,CNX 500,CNX
100,CNX 200
Issued Cap. : 7949470840(shares) as on 17-Apr-2014
Free Float Market Cap. : 195514.39(Cr)
Impact Cost: 0.04 as on Mar-2014
Financials
P/E 33.29
Book Value 28.08
Dividend(%) 525.25%
EPS 10.61
P/C 30.37
Price/Book 12.58
Dividend Yield 1.49%
Peer Comparison FMCG
ITC Technicals
Analyst Recommends
ITC being a scrip from a defensive sector is always a safe bet for conservative
investors.
Through technicals I can infer its a range bound scrip.
I see ITC as an evergreen stock due to its diverse portfolio.
The revenue target for ITC is 1Lac crore by 2020 which is more than three times of
present numbers (Consolidated figures)
I recommend buy on dips, at 335 levels with a target price of Rs.380.
Sunay Kumat Equity Research Head Vriddhi Research 3.0
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