No ifs and butts here
We believe Q2FY13 results highlight the strength of ITC’s cigarette brands. We estimate volume was flat year-on-year, but mix improvement and price increases helped revenue to grow 14% and Ebit (earnings before interest and taxes) to rise 20.3% y-o-y. Margins in the cigarette business expanded by 90bp y-o-y (versus our estimate of 70bp). We expect volume growth to improve in H2FY13e as: (i) consumers absorb price increases over time; and (ii) low-end consumers move into the micro filter segment (sub-65mm).
Q2 FY13 revenue up 19.6%, Ebitda up 24%
Net sales grew 19.6% y-o-y and Ebitda (earnings before interest, taxes, depreciation, and amortisation) margin expanded 125bp, aided by the cigarette division and the agri-business. Ebitda grew 24% y-o-y to R26.1 bn. PBT rose 20.1% and PAT 21.3% y-o-y to R18.4 bn. Overall revenue growth of 19.6% was driven by cigarettes (+14% y-o-y), agri (+41.1%) and FMCG (+26.4% y-o-y).
Hotels impacted by macro; agri, paperboard and staples did well
While the agri and the paperboard businesses posted 41%/6% revenue growth, hotel revenue grew only 3%. Margin in the hotels business dipped to 7% from 21% in Q2 FY12. Losses in the consumer staples business fell further to R303m vs. R559m in Q2FY12 and R388m in Q1FY13. We expect the consumer staples business to breakeven in Q4FY13e.
Cigarette division
ITC’s Q2FY13 net cigarette revenue grew 14%. We believe mix improvement and price increases helped revenue growth beat our estimate. We
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