itc financials
TRANSCRIPT
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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.