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    2010-11

    Group 4

    139/47 Kanav Chaudhary

    165/47 Mohammad Shadan Khan

    418/17 Harsh Kumar Mishra

    426/17 Manish Meena

    [ITC LTD FINANCIAL ANALYSIS]

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    Contents

    1 Name of Company

    2 Name of Chairman

    3 Stock Exchange Listings

    4 Brief Company Background

    5 Brief Industry Outlook

    6 Abridged Financial Statements (5 years)

    7 Select Accounting Policies

    8 Interpretation of Financial Statements

    9 Additional Financial Details

    10 Generic Ratio Analysis

    11 Trend Analysis

    12 Quarterly Financial Results

    13 Quarterly Performance Analysis

    14 Comparative Analysis

    15 Mapping Performance with Competitors

    16 Industry Characteristics

    17 Overall Comments

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    1. Name of the Company: Indian Tobacco Company Limited2. Name of the Chairman: Yogesh Chander Deveshwar, Chairman3. Listed in: Bombay Stock Exchange; National Stock Exchange4. Brief background of Company:An Indian company with an annual turnover of $6 billion and market capitalization of $22billion, the

    ITC Limited is headquartered in Kolkata, India. Incorporated on August 24, 1910 under the name

    Imperial Tobacco Company of India Limited, it was renamed as India Tobacco Company Limited in

    1970. Established in the year 1910, the company is celebrating its centenary this year. The first half of

    its century long existence was primarily devoted to the growth and consolidation of the Cigarettes and

    Leaf Tobacco businesses. However, in the latter years ITC Ltd. branched out and entered into various

    other segments like hotels, convenience goods, paperboards and specialty papers, packaging agri

    exports and apparel retailing.Indias 2nd

    largest exporter of agri based products, ITC Ltd. is one of the biggest foreign exchange

    earners in the country. One of the companys pioneer efforts in the rural areas is the e-Choupal

    venture whereby it leverages Information Technology to provide the farmers a meta-market who

    would otherwise end up in unevolved markets. ITC Ltd. also has a positive carbon footprint. A brief

    timeline of the company is given below:

    Date Significant Events

    August 24, 1910 Incorporated under the name Imperial Tobacco Company of India Limited

    1925 Packaging & Printing Business

    1970 Name changed to India Tobacco Company Limited

    1975 Launched its Hotels business

    1979 Entered the Paperboards business

    1990 Set up the Agri Business Division for export

    2000 Entered the Lifestyle Retailing business with the Wills Sport range

    2000 ITC Infotech India Limited launched

    August 2001 Foray into the Foods business with the introduction of 'Kitchens of India'

    August 2002 Surya Tobacco became a subsidiary of ITC Limited named Surya Nepal Private

    Limited

    2002 Launched brand Paperkraft

    July 2005 Introduced Essenza Di Wills,

    August 2010 Celebrated Centenary year

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    5. Brief Industry Outlook:The management of the company is making a conscious effort to diversify into other industries in a

    bid to change its image from being just a cigarette company. Therefore we have analyzed the

    company and compared it with its competitors from the FMCG Cigarette industry as well as FMCG

    Others. Following is a brief background of these 2 industries in India.

    FMCG Cigarette

    India is the 3rd

    largest producer of tobacco in the world. It is estimated that more than 36 million

    people depend on the industry for a living. While the economic importance of the industry is

    significant, it has faced constant checks and discrimination in the form of punitive taxation and

    regulation over the past years. In India only 15% (down from 23% in 1971/72) of the tobacco is

    consumed in the form of cigarettes, and the rest through other forms. However the regulations are

    targeted at the cigarette industry alone, thus failing to achieve the intention of cutting down on

    tobacco consumption. The Union Budget 2008 followed through with an unprecedented increase in

    excise duty of the order of 140% and 390% respectively on regular and micro-sized non-filtercigarettes. The year under review saw several States departing from the consensus VAT rate of 12.5%

    and increase the rates of VAT on cigarettes from time to time. Certain States also levied entry tax on

    cigarettes in addition to VAT and some others increased the entry tax rate.

    FMCG Others

    According to a recent study by the Mckinsey Global Institute, it is estimated that India

    is set to climb from its position as the 12th largest consumer market today to become the worlds fifth

    largest by 2025. Higher levels of consumer awareness, relatively low levels of

    per capita consumption and penetration and increased government spending on education are some

    of the other key factors that are expected to drive transformational change in the Indian FMCGindustry.Due to rapid growth in the recent past, this company segment has shown an impressive

    Compound Annual Growth Rate of 38% over the last 5 years.

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    6. Abridged Financial Statements (Last 5 years)

    Balance Sheet

    Year Mar 10 Mar 09 Mar 08 Mar 07 Mar 06

    SOURCES OF FUNDS :

    Share Capital 381.82 377.44 376.86 376.22 375.52

    Reserves Total 13,682.56 13,357.64 11,680.81 10,060.86 8,685.96

    Total Shareholders Funds 14,064.38 13,735.08 12,057.67 10,437.08 9,061.48

    Secured Loans 0 11.63 5.57 60.78 25.91

    Unsecured Loans 107.71 165.92 208.86 140.1 93.82

    Total Debt 107.71 177.55 214.43 200.88 119.73

    Total Liabilities 14,172.09 13,912.63 12,272.10 10,637.96 9,181.21

    APPLICATION OF FUNDS :

    Gross Block 11,967.86 10,558.65 8,959.70 7,134.31 6,227.17

    Less : Accumulated Depreciation 3,825.46 3,286.74 2,790.87 2,389.54 2,065.44

    Net Block 8,142.40 7,271.91 6,168.83 4,744.77 4,161.73

    Capital Work in Progress 1,008.99 1,214.06 1,126.82 866.14 243.4

    Investments 5,726.87 2,837.75 2,934.55 3,067.77 3,517.01

    Current Assets, Loans & Advances

    Inventories 4,549.07 4,599.72 4,050.52 3,354.03 2,636.29

    Sundry Debtors 874.08 680.55 748.96 648.11 559.02

    Cash and Bank 1,126.28 1,031.01 570.25 900.16 855.82

    Loans and Advances 1,592.93 1,860.33 1,661.57 1,398.84 1,121.83

    Total Current Assets 8,142.36 8,171.61 7,031.30 6,301.14 5,172.96

    Less : Current Liabilities and Provisions

    Current Liabilities 3,513.58 2,986.00 2,799.00 2,396.17 2,200.09

    Sundry Creditors 3,389.44 2,901.55 2,698.86 2,336.04 2,105.20

    Provisions 4,549.94 1,729.51 1,645.33 1,472.84 1,389.04

    Total Current Liabilities 8,063.52 4,715.51 4,444.33 3,869.01 3,589.13

    Net Current Assets 78.84 3,456.10 2,586.97 2,432.13 1,583.83

    Deferred Tax Assets 336.23 289.88 287.72 255.41 223.16

    Deferred Tax Liability 1,121.24 1,157.07 832.79 728.26 547.92

    Net Deferred Tax -785.01 -867.19 -545.07 -472.85 -324.76

    Total Assets 14,172.09 13,912.63 12,272.10 10,637.96 9,181.21

    Contingent Liabilities 285.13 292 314.53 190.35 163.14

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    Income Statement

    Year Mar 10 Mar 09 Mar 08 Mar 07 Mar 06INCOME :

    Sales Turnover 26,259.60 23,143.53 21,355.94 19,300.04 16,224.43

    Excise Duty 8,106.41 7,531.61 7,435.18 7,206.16 6,438.09

    Net Sales 18,153.19 15,611.92 13,920.76 12,093.88 9,786.34

    Other Income 635.12 557.48 635.24 349.96 295.02

    Stock Adjustments -175.24 136.35 32.46 266.3 145.86

    Total Income 18,613.07 16,305.75 14,588.46 12,710.14 10,227.22

    EXPENDITURE :

    Raw Materials 6,796.16 6,094.22 6,022.39 5,390.67 4,124.90

    Power & Fuel Cost 387.34 394.12 309.9 253 245.17Employee Cost 1,000.93 886.57 728.51 628 539.4

    Other Manufacturing Expenses 797.28 813.48 320.22 276.23 235.32

    COGS 8,981.71 8,188.39 7,381.02 6,547.90 5,144.79

    Gross Profit 9,171.48 7,423.53 6,539.74 5,545.98 4,641.55

    Selling and Administration Expenses 2,384.03 2,273.23 1,705.17 1,408.81 1,110.88

    Miscellaneous Expenses 604.91 493.88 567 490.29 409.72

    Less: Pre-operative Expenses

    Capitalized

    71.88 72.55 112.75 42.52 15.78

    Total Expenditure 2,917.06 2,694.56 2,159.42 1,856.58 1,504.82

    Depreciation 608.71 549.41 438.46 362.92 332.34

    Operating Profit 5,645.71 4,179.56 3,941.86 3,326.48 2,804.39

    PBIT 6,105.59 4,873.39 4,609.56 3,942.74 3,245.27

    Interest 90.28 47.65 37.79 16.04 21.1

    PBT 6,015.31 4,825.74 4,571.77 3,926.70 3,224.17

    Tax 2,036.87 1,215.31 1,355.48 1,062.48 1,020.12

    Fringe Benefit tax -0.38 24.72 23.97 16.08 20.03

    Deferred Tax -82.18 322.12 72.22 148.17 -51.33

    Total Income Tax 1,954.31 1,562.15 1,451.67 1,226.73 988.82

    Reported Net Profit 4,061.00 3,263.59 3,120.10 2,699.97 2,235.35

    Extraordinary Items 7.93 12.91 10.36 4.66 -40.44

    Adjusted Net Profit 4,053.07 3,250.68 3,109.74 2,695.31 2,275.79

    Adjst. below Net Profit 0.6 3.97 0 0 -0.02

    P & L Balance brought forward 858.14 724.45 647.53 562.06 611.41

    Appropriations 4,858.43 3,133.87 3,043.18 2,614.50 2,284.68

    P & L Balance carried down 61.31 858.14 724.45 647.53 562.06

    Dividend 3,818.18 1,396.53 1,319.01 1,166.29 995.12

    Equity Dividend % 1,000.00 370 350 310 265

    Earnings Per Share-Unit Curr 8.98 8.02 7.68 6.65 5.58

    Book Value-Unit Curr 36.69 36.24 31.85 27.59 23.97

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    Cash Flow Statement

    Year 10-Mar 9-Mar 8-Mar 7-Mar 6-Mar

    Cash and Cash Equiv. at Beg. of the year 993.7 537.28 900.16 855.82 55.66

    Depreciation 608.71 549.41 438.46 362.92 332.34

    Interest (Net) -65.93 -30.2 -101.8 -17.51 2.83

    Dividend Received -213.33 -245.78 -235.68 -204.22 -164.16

    P/L on Sales of Assets 30.88 20.95 0 0 0

    P/L on Sales of Invest -42.94 -39.91 -15.22 -6.84 -3.43

    Prov. & W/O (Net) -13.15 -59.36 -70.14 -8.2 12.25

    P/L in Forex -0.27 -4.88 3.89 -4.61 1.55

    Others 9.95 -7.71 -23.36 20.6 12.76

    Total Adj. (PBT & Extraordinary Items) 313.92 182.52 -3.85 142.14 194.14

    Op. Profit before Working Capital Changes 6,329.23 5,008.26 4,567.92 4,068.84 3,463.33Trade & 0th receivables -290.89 -102.8 -194.35 -271.32 -160.31

    Inventories 50.65 -549.2 -696.49 -717.75 -633.3

    Trade Payables 531.46 325.65 459.34 321.83 327.05

    Total (OP before Working Capital Changes) 291.22 -326.35 -431.5 -667.24 -466.56

    Cash Generated from/(used in) Operations 6,620.45 4,681.91 4,136.42 3,401.60 2,996.77

    Direct Taxes Paid -1,989.80 -1,440.18 -1,413.46 -1,260.41 -999.22

    Total-others -1,989.80 -1,440.18 -1,413.46 -1,260.41 -999.22

    Net Cash from Operating Activities 4,630.65 3,241.73 2,722.96 2,141.19 1,997.55

    Purchased of Fixed Assets -1,094.47 -1,699.70 -2,246.06 -1,742.94 -709.19

    Sale of Fixed Assets 2.86 5.56 3.63 3.82 5.89Sale of Investments 55,515.74 43,329.99 27,741.01 29,026.36 33,215.54

    Investment Income 0 0 235.67 203.59 29.29

    Interest Received 140.26 59.16 97.87 21.86 7.92

    Dividend Received 211.45 245.49 0 0 0

    Investment in Subsidiaries -534.31 -63.1 0 0 0

    Acquisition of Companies 0 -38.84 -38.83 -38.83 -38.83

    Others 93.89 46.82 39.14 34.24 48.17

    Net Cash Used in Investing Activities -3,531.56 -1,237.09 -1,736.78 -1,082.78 -175.31

    Proceeds from Issue of shares (incl. share

    premium)

    720.73 44.75 44.63 42.39 65.95

    Proceed from 0ther Long Term Borrowings 1.85 0.31 0 29.16 17.01Proceed from Bank Borrowings 0 0 0 0 0

    Proceed from Short Term Borrowings 0 0 19.4 51.99 0

    Of the Long Term Borrowings -10.06 -6.91 -5.85 0 0

    Of the short term Borrowings -61.63 -30.28 0 0 -142.64

    Dividend Paid -1,396.53 -1,319.01 -1,158.98 -989.43 -769.78

    Others -230.7 -216.43 -198.21 -139.56 -108.47

    Net Cash Used in Financing Activities -1,009.86 -1,548.22 -1,316.09 -1,014.07 -954.21

    Net Inc/(Dec) in Cash and Cash Equivalent 89.23 456.42 -329.91 44.34 800.16

    Cash and Cash Equivalents at End of the year 1082.93 993.7 570.25 900.16 855.82

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    7. Select Accounting Policies:

    AS 2: Valuation of Inventory

    Inventories, including work-in-progress, are recorded at cost or below. This is in accordance with the

    Principle of Prudence in accounting. The cost is calculated using the Weighted Average method.

    AS 6: Depreciation Accounting

    The WDV or SLM methods are used as per Schedule XIV of the Companies Act of 1956, depending on

    the type of asset.

    AS 10: Accounting for Fixed Assets

    In accordance with the standard, the software development expenses are capitalized where they are

    expected to provide future enduring benefits. Capitalization costs include license fees and costs of

    implementation/system integration services. These costs are capitalized in the year the software is

    relevant for use. All enhancement/upgradation costs are charged as revenue expenditure unless they

    bring similar significant additional benefits.

    AS 11: The Effects of Changes in Foreign Exchange Rates

    Gains and Losses arising out of foreign exchange rate fluctuations are recognized in the Profit and Loss

    in the period in which they arise except in respect of imported fixed assets where exchange variance is

    adjusted in the carrying amount of the fixed asset. Differences in exchange rates between date of

    transaction and forward exchange rate is accounted for as an income or expense over the life of the

    asset. Also profit/loss arising from cancellation of forward exchange contracts is accounted for as

    income/expense for the period. However, in respect of liabilities being incurred for acquiring

    imported fixed assets such differences are adjusted in the carrying amount of the respective fixed

    asset.

    AS 17: Segment Reporting

    The company identifies segments based on the risks and returns and the internal organization and

    management structure. Inter-segment revenues are accounted for based on transactions which are

    primarily market led. In the financial reports, revenue and expenses which relate to the enterprise as

    a whole and are not attributable to any segment are shown under Unallocated Corporate Expenses.

    8. Overall Interpretation of Financial Statements for last 5 years:

    Balance Sheet

    In FY 2010 ITC ltd issued 4.38 crore ordinary shares (@ INR 1.00 each), thus raising INR 720.73 crores. FY 2006 saw ITC rewarding his shareholders with a stock split as well as bonus share issue. The stock

    split resulted in the face value being reduced from INR 10 per share to 10 shares of INR 1 each. The

    bonus shares were issued in the ratio 1:2(1 bonus share for every 2 equity shares held )

    In FY 2010 ITC ltd reduced its long term debt by 39.33%. They paid all INR 50 cr of short term loansfrom banks.

    In FY 2010 ITC ltd had added land freehold of worth INR 43.94 crores, which includes land atBengaluru and land at Mysore. It also invested INR 779.71 crores in its plant and machinery.

    In FY 2010 ITC ltd invested INR 387.31 crores in 4 new companies- VST industries limited, Agro TechFood limited, Hotel Leelaventure Limited, EIH limited. It also increased its current investment by INR2134.56 crores.

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    In FY 2010 ITC ltd recovered all its secured loans and advances to subsidiaries.Profit & Loss Statement

    In FY 2010 ITC ltd completed its 100 years and has proposed to give special centenary dividends of INR2100 cr. This leads to a reduction in general reserves, which came down by 72.93% to INR 406.10

    crores, and a reduction of 92.85% in the profit carried forward (INR 61.31 crores). This is also reflectedin the balance sheet (schedule 2).

    This year ITC ltd has seen a growth of 16.27% in net sales and 16.16% in net income. The companysexpenditure on raw materials increased by 17.01%.

    In FY 2010 the firm reduced its design and product development expenses by 53.04%. ITC ltds current tax increased from INR 1232.07 cr. To 2062.26 cr, an increase of 67.38% , which can

    be attributed to an increase in income.

    In FY 2010 ITC ltds EPS increased by 23.90% as its PAT also increased by 24.43% and number of sharesincreased by 4.38 cr.

    Cash Flow Statement

    Prepared under the Indirect Method as per the Accounting Standard 3, the Cash Flow statement

    of ITC Ltd shows the strength of the company as a conglomerate, and how it has grown in the 100

    years of its operations. The net cash flow for the year 2010 was INR 462.14 crores.

    We see a huge cash inflow of INR 4630.65 crores being generated from Operating Activities alone.

    This clearly shows that the company is doing well in its core operations. This is a 42.8% increase over

    last years numbers.

    In Investing Activities we see that the firm has a huge negative cash flow of the amount INR3531.56

    crores. We see a large proportion of this being due to purchase of fixed assets (INR 1094.47 crores)

    which indicates that the company is expanding. This is mainly due to the fact that after being in the

    tobacco industry for decades, the company is now branching out into other sectors like ApparelRetailing, Packaged Foods, Personal Care, etc.

    Another noteworthy point is the large amount of cash (INR 57866.98 crores, a 34% increase over

    2009) being pumped into current investments. This is however offset by the sale/redemption of

    investments purchased in the previously which generates INR 55449.27 crores, again a 28% increase

    from last year.

    In case ofFinancing Activities, we see a negative cash flow ofINR 1009.86 crores. A large part of this

    is due to last years dividends (INR 1396.53 crores) which were paid during this year to the

    shareholders. This indicates that the company has enough liquidity to cover its investing activities and

    repay outstanding loans, while also paying dividends. The CFF for FY 2010 is a 34.77% drop from last

    years cash outflow due to financing activities. This drop is mainly attributed to the fact that fresh

    share capital was issued during FY 2010, generating positive inflow of INR 720.73 crores.

    9. Additional Financial Details

    Additional

    Financial Details

    Mar-10 Mar-09 Mar-08 Mar-07 Mar-06

    NOPAT 4121.94899 3295.81512 3145.89058 2710.99899 2249.97885

    COGS 8981.71 8188.39 7381.02 6547.9 5144.79

    Capital Employed 14172.09 13912.63 12272.1 10637.96 9181.21

    Credit Purchase 8931.06 8737.59 8077.51 7265.64 5778.09

    Dividend Yield (%) 0.076 0.04 0.0339 0.0412 0.0272Market Cap 100475.93 69750.91 77765.06 56583.49 73205.67

    Dividend Paid 7636.17068 2790.0364 2636.23553 2331.23979 1991.19422

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    All monetary figures are in

    Crores

    10. Generic Ratio Analysis

    Mar

    10(12)

    Mar

    09(12)

    Mar

    08(12)

    Mar

    07(12)

    Mar

    06(12)

    Profitability RatioGross Profit Ratio 50.52 47.55 46.98 45.86 47.43

    Operating Profit Ratio 31.10 26.77 28.32 27.51 28.66

    Net Profit Ratio 22.37 20.90 22.41 22.33 22.84

    COGS ratio 49.48 52.45 53.02 54.14 52.57

    COS ratio 68.90 73.23 71.68 72.49 71.34ETR 32.49 32.37 31.75 31.24 30.67

    NOPAT 4121.95 3295.82 3145.89 2711.00 2249.98

    ROA 29.35 25.17 27.46 27.36 25.98

    ROCE 29.35 25.17 27.46 27.36 25.98

    ROE 29.22 25.31 27.74 27.69 26.36

    Efficiency RatiosTotal Assests Turnover 1.29 1.19 1.22 1.22 1.13

    Fixed Assests Turnover 2.06 1.98 2.16 2.41 2.29

    Working Capital Turnover 10.27 5.17 5.55 6.02 9.37

    Current Assests Turnover 2.23 2.05 2.09 2.11 2.24

    Capital Employed

    Turnpver

    1.29 1.19 1.22 1.22 1.13

    Inventory Days 183.35 190.15 180.57 164.67 162.31

    Receivable Days 15.42 16.48 18.06 17.97 20.17

    Payable Days 126.79 115.37 112.20 110.03 124.14

    operating cycle days 71.97 91.26 86.44 72.61 58.34

    Inv turnover ratio 1.96 1.89 1.99 2.19 2.22

    Rec turnover ratio 23.35 21.84 19.93 20.04 17.85Pay turnover Ratio 2.84 3.12 3.21 3.27 2.90

    Opearting Turnover Ratio 5.00 3.94 4.16 4.96 6.17

    Liquidity RatiosCurrent Ratio 1.01 1.73 1.58 1.63 1.44

    Quick Ratio 0.45 0.76 0.67 0.76 0.71

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    Leverage RatioDebt Equity Ratio 0.00765835 0.01292675 0.0177837 0.01924676 0.01321307

    Weight of Debt in CE 0.00760015 0.01276179 0.01747297 0.01888332 0.01304076

    Weight of Equity in CE 0.99239985 0.98723821 0.98252703 0.98111668 0.98695924

    Interest Coverage Ratio 45.9822774 69.4908709 83.5641704 169.327307 106.940758

    Market Ratio and MultiplesMarket to Book Ratio(MTB) 191.382338 148.177671 204.866186 231.087771 262.1352

    Dividend Yield (%) 2.03641959 3.09175532 2.53937485 2.383821 2.542276

    Earning Yield (%) 4.67299308 7.14760638 6.00920766 5.56798623 6.01178

    Price Multipliers

    P-E ratio= 21.3995609 13.9906977 16.641129 17.9598145 16.63401P-S ratio= 7.34055211 4.5069183 5.53545115 5.66812741 5.513547

    P-CFO ratio= 37.2434267 26.0357108 28.3536559 26.5998689 21.61434

    Total Return of Shareholders(%) 122.058495 -20.466786 40.6848404 15.3089411 16.11015

    Comments1. Operating Profit is rising every year except 2008-09 due to the effect of recession on Sales growth

    but it was not significant. ROE also sees a increase except FY 2008-09. Company's ROA and ROCE are

    comparable to the operting profit which indicates asset efficiency is low.

    2. The working Capital turnover saw a sudden high in FY 2010 which means high efficiency. It hasliberal credit policy as indicated by high recivable turnover ratio. The payable turnover ratio is very

    low but it's has large market share which indicate that it may have high liquidty or low requirement of

    working capital. The total assets turnover remained almost constant and near to 1, which shows

    company's inability to effectively utilize its assets.

    3. Current ratio remained over 1 which shows that ITC has sufficient short-term solvency. But we see

    that qucik ratio is less than 1 which means that it doesn't have readily avialable short term assets to

    payback any short term liablities which might have come up. this sudden change between current and

    quick ratio means that ITC has imployeed very large amount of assests in short term investment which

    may not be available in short period.

    4. ITC has very low debt-equity ratio, indicates that company raised funds from shares rather than

    loan. In FY 2010 debt ratio further decresed which indicates that ITC may have reduced its long term

    borrowings which is confirmed by balance sheet. Also ITC saw decline in Interest Coverage Ratio but it

    is high enough to suggest that company earn suffient profit to service the interst on loan in full.

    5) ITC has performed as per market expectations. In FY 2009 it gave low dividends compare to other

    years. In the FY 2010 ITC proposed to pay centary dividends on completition of 100 years. ITC also

    maintain high P/E ratio which suggest that it is regarded as leaders in market. Also the effect of

    recession in FY 2009 was not significant.

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    11. Trend Analysis

    2005-06 2006-07 2007-08 2008-09 2009-10

    Gross Income 100 118.9335 133.0476 143.4145 162.7023

    Excise Duties 100 110.9086 115.1465 117.0613 125.9953

    Net Income 100 124.0574 144.4775 160.2409 186.1397

    PBDIT 100 118.803 138.7822 149.2605 184.7919

    Depreciation 100 109.2014 131.9312 165.3156 183.1588

    PBIT 100 119.7756 139.4762 147.6343 184.9573

    PBT 100 120.1123 139.8441 147.6127 184

    Tax 100 124.06 146.8083 157.9812 197.6406

    PAT (Before Exceptional Items) 100 118.4005 136.8243 143.1167 178.0851

    PAT 100 120.7851 139.5799 145.9991 181.6718

    Dividends 100 120.252 135.9989 143.9914 392.3795

    Ordinary Dividend 100 120.252 135.9989 143.9914 176.5709

    Special Dividend

    Earnings Per Share

    before exceptional

    Actual (Rs.)** 100 118.2867 136.4086 142.5041 175.2883

    Adjusted (Rs.) 100 118.0022 136.1142 142.0417 173.6553

    Dividend Per

    Actual Ordinary(Rs.)** 100 116.9811 132.0755 139.6226 169.8113

    Actual Special(Rs.)**

    Adjusted Ordinary(Rs.) 100 117.1285 131.9899 139.5466 168.5139

    Adjusted Special(Rs.)

    Market Capitalization*** 100 77.29179 106.2262 95.27914 137.2492

    Forex Earnings 100 127.304 120.9031 124.098 131.3129

    Trend Graphs

    80

    90

    100

    110

    120

    130

    140

    150

    160

    170

    2005-06 2006-07 2007-08 2008-09 2009-10

    GROSS INCOME

    80

    100

    120

    140

    160

    180

    200

    2005-06 2006-07 2007-08 2008-09 2009-10

    NET INCOME

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    80

    100

    120

    140

    160

    180

    200

    2005-06 2006-07 2007-08 2008-09 2009-10

    PBDIT

    80

    100

    120

    140

    160

    180

    200

    2005-06 2006-07 2007-08 2008-09 2009-10

    DEPRECIATION

    80

    100

    120

    140

    160

    180

    200

    2005-06 2006-07 2007-08 2008-09 2009-10

    PAT

    80

    130

    180

    230

    280

    330

    380

    430

    2005-06 2006-07 2007-08 2008-09 2009-10

    TOTAL DIVIDENDS

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    12. Quarterly Financial Results

    Y on Y Analysis

    Q on Q Analysis

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    13. Analysis of Quarterly Performance

    The quarter on quarter analysis shows that the quarters of 08-09 did not show much growth. There

    was a decrease in net sales during Q2 08-09 but ITC recovered in the next quarters showing a growth

    of 2% during Q3 and Q4 08-09. This lack of growth may be attributed to the fact that the Indian

    Market was suffering from High Inflation and Liquidity Crisis due the Economic Recession. The first

    quarter if 2009-10 saw similar results. Thankfuly, sales picked up in the subsequent quarters with a

    growth fo 5% in Q2 as welll as Q3. Q4 saw a very good performance form ITC with a on quarter on

    quarter sales growth if 12%. Net Profit also saw a similar trend though we see a decrease in PAT in Q4

    09-10. This is due to Increase in Operational expenses by 19%. This is due to Increase in Stock in trade

    and also due to heavy purchases made during Q4 09-10

    Q1 08-

    09

    Q2 08-

    09

    Q3 08-

    09

    Q4 08-

    09

    Q1 09-

    10

    Q2 09-

    10

    Q3 09-

    10

    Q4 09-

    10

    Sales 3899.70 3763.29 3833.31 3950.32 4147.58 4292.59 4531.85 5053.79

    Operational Expenditure 2898.69 2781.27 2624.81 2832.72 2962.08 2903.55 3027.38 3667.51

    Profit from Operations 1115.36 1081.40 1233.84 1153.20 1235.74 1441.73 1552.77 1464.10

    Net Profit After Tax 748.67 802.72 903.21 808.99 878.70 1009.91 1144.17 1028.22

    0.00

    1000.00

    2000.00

    3000.00

    4000.005000.00

    6000.00

    Amount(inRS.Cr)

    Quarter on Quarter Analysis

    Q1 09-10

    vs Q1 08-09

    Q2 09-10

    vs Q2 08-09

    Q3 09-10

    vs Q3 08-09

    Q4 09-10

    vs Q4 08-09

    Sales 247.88 529.30 698.54 1103.47

    Operational Expenditure 63.39 122.28 402.57 834.79

    Profit from Operations 120.38 360.33 318.93 310.90

    Net Profit After Tax 130.03 207.19 240.96 219.23

    0.00

    200.00

    400.00

    600.00

    800.00

    1000.00

    1200.00

    Amount(inRS.

    Cr)

    Quarterly Y-on-Y Analysis

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    The Quarterly Year on Year analysis shows that ITC has had consistent increase in its sales in all 4

    quarters. One significant thing we can observe from the graph is that in Q1 and Q2, the profitability is

    high as the operational expenditure is low. But in Q3 and Q4, the expenditure on operations has

    increased suddenly due to which we observe a decrease in the Profit from Operations. This will

    consequently reduce the PAT for ITC Ltd. The increase in operational expence may be attributed to an

    increase in the commodity prices in the Indian market due to high inflation and a general increase in

    raw material prices. ITC Ltd. would need to focus on reducing their operational costs in order increase

    their net profit from operations.

    14. Comparative Analysis with Competitors

    The two competitors of ITC Ltd. are HUL (Hindustan Unilever Ltd.) and Godfrey Philips. HUL is also a

    very large scale MCG company like ITC while Godfrey Philips solely deals in cigarettes. The Market

    Capitalization of ITC for the Financial year 2009-10 has surpassed Rs. 1,00,000 Crore. The market

    capitalization of HUL is Rs. While the same for Godfrey Philips is Rs.

    In the FMCG industry, ITC is positioned as no. 2 India while in the cigarette industry it is the market

    leader with a market share of 65%

    15. Mapping Performance with Competitors

    a. Profitability v/s Sales growthAs we compare the three companies on the factors of Operating Profit and Sales growth, we

    find that in Financial Year 2006-07, ITC enjoys a much higher Operating Profit and Sales

    Growth as compared to HUL as well as Godfrey Philips. In FY 08-09 we also see that HUL and

    Godfrey Philips witnessed an increase in Sales Growth ratio while the Sales growth of ITC

    decreased. Surprisingly, all three companies saw decrease in their operating profits. This

    observation can be assessed by the fact that there was an increase in the operational expenses

    for all companies. There was an increase in stock in trade and material purchases without a

    similar increase in sales due to which we observe a decrease in Operating profit. In FY 09-10,ITC and Godfrey saw a minute decrease in their Sales growth Ratio while the sales growth of

    Mar 06 Mar 07 Mar 08 Mar 09 Mar 10

    ITC 28.66 27.51 28.32 26.77 31.10

    HUL 11.19 9.69 11.04 8.87 11.97

    Godfrey -0.37 14.68 10.88 6.94 7.19

    -505

    101520253035

    Operating Profit

    Mar 07 Mar 08 Mar 09 Mar 10

    ITC 28.85 23.58 15.11 12.15

    HUL 8.98 12.97 48.12 -13.38

    Godfrey 15.29 14.46 25.84 24.37

    -20.00-10.00

    0.0010.0020.0030.0040.0050.0060.00

    Sales Growth

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    HUL was negative. But surprisingly, HUL still observed an increase in its' operating profit. This

    is due to the fact that there was a large inventory as well as large purchases in the previous

    year which helped the companies achieve profits in the current year.

    b. Efficiency v/s ProfitabilityITC has large Operating Profits but surprisingly we observe that the return on Assets or ITC is

    very low as compared to HUL. This is largely due to the fact that the main segment for ITC is

    cigarettes in which it is only able to produce half of its installed capacity. This results in

    wastage of its production assets. On the other hand, HUL has very high production efficiency

    sue to which we see such high ROA ratios for HUL. Low Production efficiency seems to be a

    trait of the cigarette industry as we see that Godfrey also suffers from the same problem as

    ITC. For similar reasons we also see that Total Asset turnover and current asset turnover are

    higher for HUL while being low for ITC and Godfrey.

    c. Liquidity v/s ProfitabilityThe Liquidity ratios for the 3 companies, namely the Current ratio and Quick Ratio show us

    that the ability to leverage for HUL is very low. The current ratio for HUL is less than1 which

    means that it does not have sufficient Short term assets available to pay off any short term

    liabilities. This would negatively affect the ability of HUL to raise funds from markets. ITC andGodfrey have their current ratio being greater than 1. So they can manage their short term

    liabilities according to this ratio. But when we compare the quick ratios, we find all three

    Mar-

    06

    Mar-

    07

    Mar-

    08

    Mar-

    09

    Mar-

    10

    ITC 25.97 27.35 27.46 25.17 29.35

    HUL 60.30 72.28 90.03 125.5 87.13

    Godfrey 14.21 19.70 21.18 17.65 16.94

    0.00020.00040.00060.00080.000

    100.000120.000140.000

    ROA

    Mar-

    06

    Mar-

    07

    Mar-

    08

    Mar-

    09

    Mar-

    10

    ITC 22.841522.3250 22.4132 20.9044 22.3707

    HUL 12.708115.3651 14.1154 12.3555 12.5818

    Godfrey 8.9731511.4052 12.6925 9.78799 8.55427

    0

    5

    10

    15

    2025

    Net Profit

    Mar-

    07

    Mar-

    08

    Mar-

    09

    Mar-

    10

    ITC 1.2204 1.2153 1.1924 1.2927

    HUL 4.6815 6.3096 10.0743 6.9081

    Godfrey 1.6910 1.6341 1.7426 1.9025

    0.0000

    2.0000

    4.0000

    6.0000

    8.0000

    10.0000

    12.0000

    Total Asset Turnover

    Mar-

    07

    Mar-

    08

    Mar-

    09

    Mar-

    10

    ITC 2.1080 2.0883 2.0538 2.2255

    HUL 4.0639 4.2317 4.5515 3.1912

    Godfrey 3.0924 2.9007 2.5854 2.6363

    0.0000

    1.0000

    2.0000

    3.0000

    4.0000

    5.0000

    Current Asset Turnover

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    companies have quick ratio being less than 1. This means that they don't have readily available

    assets to payoff the short term liabilities. We can assume that ITC and Godfrey have invested a

    lot in short term assets which are not readily available for liquidation to pay off short term

    assets.

    d. Sales Growth v/s Market ValuationFor FY 2007, 08 and 09 HUL emerges as the company with the highest P/E ratio as well as the

    highest sales. But FY 2009-10 sees HUL declining in Sales growth. This sentiment was shared by

    the market which resulted in a decrease of P/E ratio for HUL by 10%. At the same time the P/E

    ratio for ITC increased by 25% while Godfrey Philips had an exceptional growth at 142%. This

    growth for ITC and Godfrey came due to the lower than expected performance of HUL for the

    financial year.

    e. Dividend Payout v/s CapexGodfrey Philips, being solely a cigarette manufacturer has very low market capitalization as

    compared to ITC and HUL due to its limited assets. Market capitalization witnessed a

    consistent growth for all 3 companies except in FY 2006-07 when ITC dropped by almost 27%

    of its total value. HUL, on the other hand, had constant capitalization. On FY 2009-10, ITC

    crossed the historical benchmark of being the first FMCG company to have a marketcapitalization of Rs. 1,00,000 crore. Also, 2010 being its centennial year, ITC offered 4 times

    the normal dividends amounting to a total of Rs. 21000 crore.

    Mar-

    06

    Mar-

    07

    Mar-

    08

    Mar-

    09

    Mar-

    10

    ITC 1.4413 1.6286 1.5821 1.7329 1.0098

    HUL 0.6717 0.7008 0.6412 0.9684 0.7972

    Godfrey 1.6684 1.7550 1.5243 1.6632 1.9728

    0.0000

    0.5000

    1.0000

    1.5000

    2.0000

    2.5000

    Current Ratio

    Mar-

    06

    Mar-

    07

    Mar-

    08

    Mar-

    09

    Mar-

    10

    ITC 0.7068 0.7617 0.6707 0.7575 0.4456

    HUL 0.3515 0.3586 0.2590 0.5312 0.4734

    Godfrey 0.6481 0.7130 0.5017 0.4650 0.6666

    0.00000.10000.20000.30000.40000.50000.60000.70000.8000

    Quick Ratio

    Mar-

    07

    Mar-

    08

    Mar-

    09

    Mar-

    10

    ITC 22.6200 26.8700 23.0400 29.3000

    HUL 28.6100 29.6700 29.2600 26.5200

    Godfrey 14.2200 12.5200 7.1700 17.7600

    0.00005.0000

    10.000015.000020.000025.000030.000035.0000

    P-E ratio

    Mar-

    06

    Mar-

    07

    Mar-

    08

    Mar-

    09

    Mar-

    10

    ITC 1991. 2331. 2636. 2790. 7636.

    HUL 1098. 1323. 1988. 1658. 1436.

    Godfrey 23.46 26.05 26.05 26.01 25.92

    0.00001000.00002000.00003000.00004000.00005000.00006000.00007000.00008000.00009000.0000

    Div. Pay out (in Rs Cr.)

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    16. Industry Characteristics

    Indicators that capture the industry characteristics are ROA in cigrattes industry are lower than the FMCG industry as seen from the data analyzed of the

    companies.

    FMCG industry saw huge difference between current ratio and quick ratio which indicates thatcompanies are highly investing in short term investment which may not be readily convertible in cash.

    In FMCG industry companies are providing high dividends to share holders which indicate that theindustry is mature but at the same time it retain enough cash to fund business activity and handle

    contingencies, clearly indicating that investment opportunities are better than the growth

    opportunities for the company

    17.Overall Financial Health of ITC

    ITC is celebrating centenary year of existence in the year 2010. Company started from Tobacco Company and diversified in the course of year to the extent of

    becoming the second biggest FMCG Company of India.

    ITC's ABD, one of India's largest agricultural exporters, ITCMaratha at Mumbai was declared to be theBestLuxury Hotelof the Year clearly shows the perfection achieved in diversification.

    ITC is clear market leader in cigarette industry as its market share is more than 75%. ITC market capitalization significantly increased from ` 70,000 crores to ` 1, 00,000 crores in the year

    2010, showing an increase of over 43%.

    Mar-06 Mar-07 Mar-08 Mar-09 Mar-10

    ITC 73205.670 56583.490 77765.060 69750.910 100475.930

    HUL 43418.670 47786.090 47222.700 52644.580 52798.050

    Gpdfrey 1514.140 1189.860 1349.820 749.680 2025.660

    0.000

    20000.000

    40000.000

    60000.00080000.000

    100000.000

    120000.000

    Market Capitalization (in Rs Cr.)

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    Company has very low debt and high liquidity which indicates the cash richness of the company. Alsothe great performance and the market belief in ITC shows the strong foundation on which the empire

    of ITC is build upon.

    Company clearly follow the latest market culture of being share holder oriented as we can see thedividend payout in the year 2010 increased from ` 2800 crore to` 7650 crore, an increase of 173%.

    The increase in turnover of the company is mainly driven by the non-cigrattee FMCG businesshigheragri-business revenues and the continuing strong performance by the Hotels business.

    The Company has successfully transformed itself since majority of its revenues now come from non-cigarettes FMCG business, the continued success of ITC hotels, ever increasing agricultural exports,

    nurturing rural India through its initiatives E-Choupal, ITCs future no wonder is one of the brightest in

    India. ITC is build upon sound economic fundamentals and more importantly consumers belief and

    trust.