Analysts' PIcks: ITC
CLSA continues to remain positive on ITC and a potential weakness in the stock on the back of lower-than-expected earnings will present a 'buy' opportunity.
ITC
RESEARCH: CLSA
RATING: BUY
CMP: RS 188
CLSA continues to remain positive on ITC and a potential weakness in the stock on the back of lower-than-expected earnings will present a 'buy' opportunity.
For the first time, ITC reported a y-o-y decline of 4.4% in earnings during Q1 FY09. This 15% lower-than-expected profit was due to higher losses in the company's new FMCG business, which is a cause for worry.
Moreover, the company booked one-time expenses related to certain writeoffs, due to discontinuation of its non-filter cigarettes business, as well as additional point-of-purchase expenditure incurred in upgrading consumers to the filter category.
On the positive side, ITC's overall volume drop in the cigarette business was only 3%, driven by 20% volume growth in filter cigarette volumes, which was much better than expected. After a negative surprise in Q4 FY08, the losses recorded by ITC's new FMCG business further increased to Rs 122 crore during Q1, against expectations of Rs 50 crore.
This is attributable to a sharp rise in input costs and higher ad spend to support new product launches. The company will hike prices in Q2, but the impact of this will be felt only from Q3.
The impact of higher losses in ITC's FMCG business gets neutralised with its lower cigarette volume drop assumption. CLSA maintains its earnings forecast and positive view on the stock.
RESEARCH: CLSA
RATING: BUY
CMP: RS 188
CLSA continues to remain positive on ITC and a potential weakness in the stock on the back of lower-than-expected earnings will present a 'buy' opportunity.
For the first time, ITC reported a y-o-y decline of 4.4% in earnings during Q1 FY09. This 15% lower-than-expected profit was due to higher losses in the company's new FMCG business, which is a cause for worry.
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Moreover, the company booked one-time expenses related to certain writeoffs, due to discontinuation of its non-filter cigarettes business, as well as additional point-of-purchase expenditure incurred in upgrading consumers to the filter category.
On the positive side, ITC's overall volume drop in the cigarette business was only 3%, driven by 20% volume growth in filter cigarette volumes, which was much better than expected. After a negative surprise in Q4 FY08, the losses recorded by ITC's new FMCG business further increased to Rs 122 crore during Q1, against expectations of Rs 50 crore.
This is attributable to a sharp rise in input costs and higher ad spend to support new product launches. The company will hike prices in Q2, but the impact of this will be felt only from Q3.
The impact of higher losses in ITC's FMCG business gets neutralised with its lower cigarette volume drop assumption. CLSA maintains its earnings forecast and positive view on the stock.
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