Insights of ITC

Analysis and Comments on Financial Statements

Submitted to:
Prof. Vandana Gupta

Submitted by:
Abhas Agarwal- 211181 Anurag Sengar- 211174 Ankit Kothari- 211175 Durgendra Singh- 211172 Lavi Agarwal- 211170 Subhendu Bagchi- 211137

The analysis performed by the group on various sections is written in Brown Colored Italic font. The data used for analysis is collected from www.moneycontrol.com & ITC financial report handouts.

Table of Contents
Chapter 1: Introduction on Company Profile Line of Businesses Board of Directors Shareholding patterns Recent events page 3 page 3 page 4 page 5 page 5

Chapter 2: Operating Performance Analysis of Sales Mix Pee-Comparison Export Sales Chapter 3: Financial Statement Analysis Ratio Analysis Trend Analysis Profit/Loss & Balance Sheet Analysis Chapter 4: Cash Flow Analysis Chapter 5: SWOT Analysis page 12 page 14 page 17 page 18 page 19 page 6 page 10 page 10

ITC
(Indian Tobacco Company) Introduction: Indian public conglomerate company. Headquarter-Kolkata, West Bengal Annual Turnover-$7 Billion Market Capitalization-$34 Billion Chairman-Yogesh Chander Deveshwar 100 Years completion on 24 August 2010

Line of business: FMCG (Mainly Cigarettes and then confectionaries, toiletries, cosmetics etc) Hotels Paperboards, Paper and Packaging Agri Business

(The company is gradually moving to various new sectors, unlike their primitive business of cigarettes, this may be because of the governmental norms growing against promotion of cigarettes. The latest announcement that the company has made is regarding their entry to diary sector serving society with milk, butter, cheese and other products.) Board of directors:Percentage to total Major Responsibility no. of Directors Chairman 25 P.V.Dhobale K.N. Grant A. Baijal S.H.Khan NonExecutive Independent Directors (9) S.B. Mathur P.B. Ramanujam B.Sen B.Vijayaraghavan S.Banerjee A.V. Girija Kumar D.K. Mehrotra Other Non- H.G. Powell Executive A.Ruys Directors (3) K.vaidyanath Total 16 19 100 3 56 Looks after Hotels Business Looks after Paper & Packaging Business Looks after FMCG sector

Category Executive Directors (4)

Name Y.C. Deveshwar N.Anand

(The appointment of executive directors for various responsibilities shows that the company is managing all its sectors well and is very considerate about them.)

Shareholding Pattern (%):-

Bodies Corporate, 5.76 NRIs And Foreign Nationals, 0.54

Shares underlying Global Depository Receipts, 0.31 Public and Others, 10.87 Banks, Financial Institutions, Insurance Companies and Mutual Funds, 34.25

Foreign Companies, 30.87 Foreign Institutional Investors, 17.4

(The shareholding pattern holding shows that the company has nearly all the equity from public, the share of promoters is plenty. Also majority shareholders are Banks, Financial Institutions, Mutual Funds and Insurance Companies which generally hold the shares for a very long time. This shows that company is always cash-rich)

Top Ten Shareholders as on March 31, 2012

S.No. 1 2 3 4 5 6 7 8 9 10 Name of the Shareholder Tobacco Manufacturers (India) Limited Life Insurance Corporation of India Specified Undertaking of the Unit Trust of India Myddleton Investment Company Limited The New India Assurance Company Limited General Insurance Corporation of India The Oriental Insurance Company Limited National Insurance Company Limited Rothmans International Enterprises Limited ICICI Prudential Life Insurance Company Limited No. of Shares held 1,98,55,64,880 93,87,40,442 89,67,22,590 32,42,07,960 16,42,79,072 14,48,70,157 12,91,67,513 12,56,82,220 10,33,03,260 9,02,72,818 % 25.39 12.01 11.47 4.15 2.1 1.85 1.65 1.61 1.32 1.16 62.71

Total Percentage Covered

(The figure shows that top ten shareholders of the company hold for nearly 63% of the companys equity, and the names of these shareholders are well-known to all, these proves that company has a good image among their shareholders)

Analysis of Sales Mix

Total revenue
40000 35000 30000 Axis Title 25000 20000 15000 10000 5000 0 Total revenue 2009 25817.32 2010 28931.27 2011 30527.88 2012 34871.86

(The chart above shows that the Total Revenue of the company including all the sectors is growing every year. Growth in FY2011-12 was 14.22%)

Visualizing the performance of each sector now Here, instead of analysing FMCG as one sector, It is sub-divided into Cigarettes and other FMCG sector. (The latter includes confectionary, toiletries, cookies etc)

Cigarettes

Cigarettes
25000

63.79% 64.93% 59.74% 58.54%

20000 Axis Title 15000 10000 5000 0 ciggrates

2009 15115.07

2010 17283.03

2011 19821.16

2012 22248.07

(The figure above shows Cigarettes holds the majority of share in total revenue of the company. Excluding FY2011-12, the share has always risen. Also, despite there was a drop in share of cigarettes in total revenue, still the revenue from share has risen by12.24%)

Other FMCG Products

Other FMCG
6000 5000 4000 Axis Title 3000 2000 1000 0 Other FMCG 2009 3014.04 2010 3641.68 2011 4480.12 2012 5539.93

15.88% 14.67% 12.58% 11.67%

(The figures above shows a continuous increase in the share of other FMCG products in the total revenue of the company, also the revenue of this section is also continuously growing. For FY2011-12 the volume growth was 23.65%, which is remarkable)

Hotels

Hotels
1040 1020 1000 980 960 940 920 900 880 860 840 hotels

3.98%

3.24%

2.86%

Axis Title

3.15%

2009 1020.27

2010 910.81

2011 991.47

2012 996.3

(Though this sector contributes just 2-3% in the total revenue, but still the company predicts a high level of growth in this sector, recently it is in talks with TAJ Hotels, planning to but their branch of Delhi. There was a sharp downfall in FY2009-10, due to some internal conflicts and mismanagement, but the sector grew 8.8% in FY2010-11, as it provided accommodations to my players participating in Commonwealth Games)

Agri Business

Agri
4500 4000 3500 3000 Axis Title 2500 2000 1500 1000 500 0 Agri 2009 3845.98 2010 3862.14 2011 2919.55 2012 3507.85

14.89 %

13.35 % 10.06% 9.56 %

(This sector provides a share of nearly 10-12% in the total revenue of the company. This sector however does not shows a significant growth in the share, this is because a majority of farming is dependent on monsoons, and year 2010,2011 had missed monsoons.
8

However, the company has installed various scientific equipments to enhance the productivity of the land, viz. Tube well; this helps in irrigating the land even in absence of monsoons. Also the company has now started planting tobacco, so that they can cut down their dependence on suppliers for tobacco The company has also started many initiative to educate farmers, Their program like e-chaupal is helping farmers to get the environmental conditions, tips regarding farming and also the current price of the crop Another initiative is Chaupal-Sagar which also is regarding the welfare of the farmers and the rural people)

Paperboards

Paperboards
3500 3000 2500 Axis Title 2000 1500 1000 500 0 paper 2009 2821.96 2010 3233.61 2011 2315.58 2012 2579.71

11.17 % 10.93 % 7.39 % 7.58 %

(The share of this sector is regarding 7-10%, the total revenue got dropped in FY2011-12 because of a significant increase in their operating expenses. This sector grew by 11.4% in FY2011-12)

Peer Comparison

(The figures above show that ITC dominates over all its peers in the cigarettes sector. In all the categories, ITC is at the top.)

Sales as per Geographic Divisions

ITC exports only Cigarettes in various parts of the world. The growth of the sales within the country and outside that is given below

Within India
35000 32619.1 30000 25000 20000 15000 10000 5000 0 2009 2010 2011 2012 21381.6 Within India 24020.27 28140.72

(The sales for the company has steeply risen within the country for cigarettes segments)

10

Outside India
3000 2500 2239.33 2000 1761.93 1500 1000 500 0 2009 2010 2011 2012 Outside India 2463.67 2252.76

(The sales in FY2011-12 has fallen, due to increase in excise duty in the countries where ITC used to trade. However, as per the Directors Statement ITC is planning to export their other FMCG products too to various parts of the world. Director focuses on Aashirwaad Aata, saying they would try to work in exporting that.)

11

Financial Ratio Analysis

Liquidity Ratios: Year / Ratio
Current ratio Quick Ratio Debtors Payment Days

2009
1.73 0.76 11.08

2010
1.01 0.45 10.61

2011
1.07 0.45 10.52

2012
1.11 0.49 9.79

By looking at their liquidity ratio, following points can be made Company is very conservative as its current ratio is nearly 1, the company uses generally its own funds. There have not been any significant changes in the figures. There is also stability in the quick ratio of the company, shows that management of the company is good. In FY2011-12, this figure has marginally increased, which is a good sign. The debtors payment days is also in the range of 9-11 days, which is nearly same for this sector. Also there has been a marginal downfall on this no. on FY2011-12, which is again a good sign.

Solvency Ratios: Year / Ratio

Debt/Equity Debt/Asset Inventory Turnover Days

2009
0.01 .012 69.92

2010
0.01 .007 63.47

2011
0.01 .005 59.95

2012
0.01 .006 57.68

Following are the points that can be made by looking at the solvency ratio The D/E and Debt ratio both are too thin, indicating that company depends on its own funds. There is hardly any borrowing. Inventory Turnover days has gradually fallen from nearly 70 in 2009 to nearly 58 in 2012, showing that company isnt piling up the inventory, instead is able to sell them. Shows good Supply-Chain-Management.

12

Profitability Ratios: Year / Ratio

Operating profit margin Assets Turnover ROE Net Profit margin

2009
21.6% 1.77 25.42 16.8%

2010
24% 1.87 29.33 18.3%

2011
24% 2.03 33.35 16%

2012
24.5% 2.01 35.58 17%

Following are the points that can be made after visualizing these data Operating Profit margin has gradually increased, also from the balance sheet and P/L account, it was clear that, income has risen significantly but expenses hadnt, this shows that company is adopted new techniques to cut -down their prices and maintain the same level of production. This increase is appreciable for any company. Assets Turnover ratio is also increasing or nearly stable, shows that utilitisation of assets is done properly and this management is gradually improving. ROE is increasing at a significant rate, thus attracting new shareholders. Also Net margin is gradually increasing, expect in FY2010-11, this downfall is due to high taxes implemented by Governments. Still in FY2011-12, the net profit margin has grown from 16% to 17%, which is remarkable.

13

Trend Analysis

Gross Income
40000 35000 30000 25000 20000 15000 10000 5000 0 2009 2010 2011 2012 26814.32 23593.64 Gross Income 31399.1 36072.59

(The gross income of the company is increasing in every fiscal year. The growth in FY2011-12 is 14.8%. There has been a significant increase in sales of sector like cigarettes, other FMCG and Agri Business.)

PBDIT
12000 10000 8000 6000 4000 2000 0 2009 2010 2011 2012 6688.77 5393.47 PBDIT 7992.53 9673.96

14

(There has been an increase in Income of the company from all the sectors while the percentage growth in expenditure is marginal, thereby making that PBDIT rise continuously. Also company has increased the price of cigarettes once a year, and this sector contributes a major section for their growth.)

Equity
40000 35000 30000 25000 20000 15000 10000 5000 0 2009 2010 2011 2012 27470.16 31906.54 28128.76 37583.78

Equity

(There has been marginal growth in equity from 2009 to 2011, but the equity has increased in FY2011-12, as company has issued some shares)

Long-term Liablity
1100 1050 1000 950 900 850 800 2009 2010 2011 2012 921.93 1053.58 1003.07 Long-term Liablity 1072.68

(The long term liability is growing with a moderate rate, which is mainly due to Deferred tax liability. The company has however made some repayment of the loans in FY2009-10.)

15

Current liability
10000 8000 6000 4000 2000 0 2009 2010 2011 2012 4695.55 Current liability 8019.03 8477.48 9101.83

(The current liability is not a great issue to focus on, because a majority of share in these figures are of Tax payable and Dividends payable, the latter giving good signals to the shareholders.)

Net worth per share

30 25 20 15 10 5 0 2009 2010 2011 2012 20.62 18.2 18.42 Net worth per share 24.04

(The growth in Net worth per share is proportional to the growth of the company, and can make shareholder happy)

16

Share price
300 250 226.85 200 150 100 50 0 2009 2010 2011 2012 Current Value 92.4 131.58 181.45 share price 268.15

(The increasing growth of the share price of the company is shown above. The data is recorded on April 1, of the corresponding year, and current value is pertaining to Sept 11,2012. There has been a remarkable growth in the value of the shares.)

12 10 8

Dividends
5.5

6 4 2 0 2009 2010 Dividend Special 2011 2012 3.7 4.5 2.8 1.65 4.5

(ITC has always been kind to their shareholders, they provide annual dividends, also in 2010, Company got its 100 years completed and provided an special dividend worth Rs 5.5 per share to all their shareholders, also since there was a remarkable growth in companys performance in half-yearly reports of 2011, company has also given interim dividend worth Rs 1.65 per share)

17

Cash Flow Analysis

Cash Flow Analysis
Operating Activity Investing Activity Financing Activity

6015 4630 3279 -1260 -3531 -1556 2009 -1009 2010 -3551 2011 -3246 2012 5264 -616 -2210

After visualising the graph and data above, following points are concluded: Cash from operating activities of the company is growing at a very significant rate; this is a good sign as it makes trust in the minds of the investors that the company is growing. For FY2011-12 Growth rate is 14.26%. Cash from investing activities is seen to be negative in almost all the year; this is because company regularly believes in purchasing fixed assets and a huge amount of Current investments. Also it supports many of its subsidiaries. Cash from financing activities is also generally seen to be negative; This is because company pays a huge amount of dividends to its equity shareholders and Income tax for dividends. Distribution of dividends is always a good sign for shareholders. But there is always a significant inflow of cash from the issue of share capital.

18

SWOT Analysis
Strengths They are into Cigarettes from so long, thus introduction of new FMCG products to the market is not very tough as same distribution channel is required to meet the retailers, so the expenses of the company will be low. The company has planned to rely on renewable sources of energy for their almost sectors specially Hotels, This will help them in cutting down their operating expenses. Subsidy in their Agriculture business by government.

Weakness High taxation in their cigarettes segment; nearly 60% of the price of cigarettes constitute for taxes. Currently States like U.P. and Karnataka has imposed VAT of 50% on tobacco products. Due to this Company cannot maintain a uniform price across the country.

Opportunity The company is planning to expand their FMCG sector, recently they have announced to enter into Dairy Sector. The company is ready to invest 25000 Cr. In its FMCG, logistics and Hotels segments in the next 5-7 years. The company is planning to buy Hotel Ashok, Delhi.

Threats Their Cigarettes division is always on target, Governments both state and central; impose new tax and duties every now and then. This bounds the company to raise the price of this segment which contributes more than 50% of their business. Their majority of Agriculture Business is still dependent on monsoons, thus any absence of monsoon results in overall loss for this sector. Entries of new players in FMCG sector, viz. Sahara Q, Easy Day etc. If FDI in retail gets permitted there will also be many foreign players entering Indian Market.

19