tips to buy best ITC shares buying and selling shares in India

ITC Ltd (updated - 29 July 2009)
The June 2009 quarter is the sixth consecutive quarter in which ITC has reported losses of around Rs 100 crore for the noncigarette FMCG business. While the losses in themselves are about 19 per cent, what is disconcerting is that the foods segment isn’t quite gaining the kind of momentum that it should be.

Analysts believe this could be due do a focus away from glucose in the biscuits space and competitive pressures in the salty snacks segment. The personal products segment, however, continues to do reasonably well, albeit on a small base, but the 9.6 per cent growth in non-cigarette FMCG businesses is disappointing. Despite the cigarettes business posting astrong revenue growth of 14.4 per cent (net sales were even more impressive at 23 per cent), driven by 5-6 per cent rise in volumes, ITC’s sales for the June 2009 quarter were up just over 5 per cent to Rs 4,130 crore.

Disclaimer: Information presented on this site is a guide only. It may not necessarily be correct and is not intended to be taken as financial advice nor has it been prepared with regard to the individual investment needs and objectives or financial situation of any particular person. Stock quotes are believed to be accurate and correctly dated, but does not warrant or guarantee their accuracy or date.
Our site takes no responsibility for any investment decisions based on recommendations provided on website.

The performance of hotels was expected to be weak given the downturn in the economy and resulted in a sharp drop in margins; occupancies and average room rates (ARRs) are expected to pick up in the second half of the year.

Meanwhile, ITC has been rationalising the agricommodities business to focus on certain crops such as wheat and tobacco. This led to a drop in revenues of close to 50 per cent for the segment, though margins have expanded. The better profitability in cigarettes, agri-commodities and lower losses in the FMCG business helped push up operating profit margins for the company by 400 basis points to 33.6 per cent.

At Rs 240, the stock trades at 23 times estimated 2009-10 earnings and 20 times estimated 2010-11 earnings. After a couple of difficult years, when volumes were virtually stagnant, cigarettes should continue to do well with most of the action on the tax front behind it, and volumes should sustain at 4-5 per cent. Also, the non-cigarette FMCG businesses should see losses reducing as they build scale. However, analysts believe that some of the other businesses appear to be overvalued visa-vis peers and attribute a sum-of-the-parts value to the stock of Rs 237.
source - BS

ITC Ltd (updated - 09 June 2009)
The Maharashtra government’s decision to impose a value- added tax of 20 per cent on cigarettes has come as a bit of a blow for ITC which closed 4 per cent lower on Monday at Rs 184. The fairly sharp rise of nearly 8 per cent may prompt ITC to increase prices in a bid to neutralise the effect of the higher tax.

That could hurt volumes in the state -which contributes around 9 per cent to ITC’s total volumes-though it’s hard to tell how much they will fall. The financial impact of the higher VAT in Maharashtra may not be very significant for the company --analysts point out that it would need to take a price hike of just 0.6 per cent across the portfolio to offset the increase.

However, what’s worrying is that other states could follow suit, especially bigger states such as West Bengal and Kerala, whose budgets are due later this month. The Street is also apprehensive that excise duties on cigarettes may be hiked in the coming budget and once again, if ITC needs to raise prices, volumes could be hit.

Analysts believe that an excise duty hike of more than 5 per cent would be detrimental to volumes in the long run. ITC discontinued selling non-filter cigarettes following the sharp increase in duties in the last budget which was partly why volumes came off by 2.5-3 per cent in 2008-09.

Although the company has been diversifying into new areas, cigarettes account for around 40 per cent of sales while they fetch around 85 per cent of the profit before interest and tax. The ITC stock has underperformed the BSE Sensex by about 40 per cent since the start of the year. That’s not so surprising because investors have been discarding defensives in their search for growth and value especially post the election results.

In fact, since early March when the markets started rallying, fund managers have been looking for value stocks. ITC’s earnings were expected to grow by about 17-18 per cent in the current year but those numbers may not materialise, say analysts.

Meanwhile, the difficult and uncertain regulatory environment will keep the ITC stock subdued in the near term.
source - BS

ITC Ltd (updated - 08 July 2009)
The ITC stock has jumped 10 per cent in two trading sessions with the much-awaited hike in excise duties — of around 5 per cent — not coming through in the union budget for 2009-10. Since the start of the year the stock had gained just 12 per cent underperforming the BSE FMCG Index which moved up by 15 per cent. In fact the stock lost 4 per cent in a session when the value-added tax on cigarettes in Maharashtra was increased to 20 per cent.

The feeling was that the higher levy would prompt the company to increase prices in the process hurting volumes. But the unchanged central excise duty, analysts say, outweighs the VAT increases in Maharashtra and Delhi.

As a result, estimates for the current year have been upped with expectations that the company could grow its top line by as much as 13-14 per cent driven by a 6-7 per cent rise in volumes. So revenues could come in at around Rs 17,500 crore, while net profits are expected to grow at a higher 17-19 per cent driven by an expansion in operating margins of about 100 basis points, thanks mainly to better profitability in the cigarettes business.

Hotels are expected to do better this year on a weaker base while the FMCG business is expected to report lower losses. At a price-earnings(P/E) multiple of just under 21 times estimated 2009-10 earnings and 18 times estimated 2010-11earnings, the ITC stock trades below its three-year average P/E of 21 times.

It’s unlikely the stock will trade at much higher multiples because the regulatory environment for cigarettes remains unfavourable - it’s possible other states too could hike VAT to 20 per cent. To maintain margins, ITC would, therefore, need to hike prices which could hurt volumes-in the last couple of years volumes have barely grown.

Cigarettes may fetch just around 40 per cent of ITC’s sales but they bring in close to 85 per cent of the company’s profit before interest and tax. The noncigarette FMCG businesses, it would appear, will continue to be a bit of a drag on the bottom line for some more time.
source - BS

ITC Ltd (updated - 01 Oct 2009)
Competition at the higher end of the Indian cigarette market is tipped to increase with the national rollout of Malboro and Philip Morris expected to bring in more global brands. However, that should expand the market and in any case, ITC’s volumes have been growing at 5-6 per cent.

Neither the higher VAT nor the modest price hikes have impacted volumes negatively and the weak monsoon too hasn’t hurt the business so far. That’s one reason why the ITC stock has been re-rated, the other reason being losses for the non-cigarette FMCG business should come down to around Rs 400 crore this year, with the profitability of the biscuits and retailing businesses improving.

In the June 2009 quarter, ITC reported losses of around Rs 100 crore for the non cigarette FMCG business, the sixth consecutive quarter of losses. But ITC’s personal care portfolio revenues, which were around Rs 200-250 crore last year are expected to grow to around Rs 300320 crore in the current year, according to analysts, and the business should break even sometime in 2011-12, once it achieves scale.

Currently, high ad spends are eating into profits, though industry watchers say ITC has picked up a share of 3.5 per cent of the soap market with both Vivel and Superia doing well. The low brand loyalty in soaps, especially at the lower end, will however, remain a challenge for the company. Also, the high-end Fiama brand appears to be facing some competition from Hindustan Unliver’s Dove, which has gained market share.

ITC’s retailing business has been restructured and that should pay off; already, with the economy recovering, same store sales are picking up. Indeed, the better environment is helping the hotels business too with both occupancies as well as Average Room Rates (ARR), improving though margins would continue to be under pressure for some more time. That apart, the rationalisation of the agricommodities business, with afocus on more profitable crops such as wheat and tobacco, will help expand margins for this segment.
In fact, the impact of some of the changes was seen in the June quarter when ITC’s operating profit margins rose 400 basis points to 33.6 per cent. Analysts have a price target of between Rs 255 and Rs 265 for the stock which currently trades at Rs 234.
source - BS

ITC Ltd (updated - 24 Oct 2009)
The highlights of ITC’s sterling set of numbers for the September 2009 quarter are the strong performance of the cigarettes and agri businesses and smaller losses from the noncigarette FMCG segment.

Not surprisingly, the stock closed 5 per cent higher at Rs 260 on Friday, with operating profit margins rising by 620 basis points year-onyear, to just under 36 per cent, on revenues of Rs 4,293 crore, up 14 per cent year-on-year.

The strong profitability pushed up the operating profit by nearly 38 per cent to Rs 1,537 crore. The cigarettes business has been remarkably resilient despite the ban on smoking in public places, the hike in value-added taxes in several states and the modest price hikes taken by the company.

In fact, the ITC stock was re-rated a few months back since cigarette volumes were seen to be growing at a good clip of 4-5 per cent and industry watchers believed the momentum would sustain.

Moreover, the management has indicated that noncigarette FMCG losses would be brought down to Rs 400 crore this year; while ITC posted a loss of around Rs 100 crore in each of six consecutive quarters, the loss in the September 2009 quarter was Rs 85 crore.

The company continues to enjoy a fair share of the branded packaged foods space and that’s evident from 13 per cent revenue growth during the September quarter. Brands across the various categories including staples, biscuits, confectionery and snack foods appear to be gaining salience.

Moreover, the company’s retailing venture is doing well after arecent restructuring exercise, while the personal care portfolio is expected to clock revenues of Rs 300--320 crore this year and should break even in 2011-12.

Also, the focus on more profitable cash crops such as wheat and tobacco is clearly paying off; the September quarter saw tobacco exports fetch good realisations.

Meanwhile, a sequential comparison of ITC’s hotels segment with the June quarter suggests that occupancies and average room rates (ARRs) may be improving, though it could be a while before they head back to levels seen before the global financial crisis broke out.
In the current year, ITC is expected to post revenues in the region of Rs 17,500 crore, while net profits are expected to come in at around Rs 3,800 crore, implying a growth in earnings of about 17-18 per cent over 2008-09.

While analysts have been valuing the stock on asum-of-the-parts basis and attributing a price of between 235-250, it’s possible the September quarter numbers will result in a further rerating.
source - BS