Indian Tobacco Company Ltd.

PGDM IB Roll No.29

Indian Tobacco Company Ltd.

Ratio Analysis

Submitted by:

Prerna Makhijani PGDM IB Roll No. 29

Indian Tobacco Company Ltd. PGDM IB Roll No.29

Sector Overview The fast moving consumer goods (FMCG) sector would witness over 40 per cent growth in the semi-urban and urban areas, according to an analysis carried out by the Associated Chambers of Commerce and Industry of India on `Future prospects of FMCG'. The size of the sector would go up from the present Rs 38,500 crore to Rs 50,000 crore by 2012, says the analysis. In urban India alone, the sector would witness over 100 per cent growth with its size increasing to Rs 35,000 crore by 2010 from the present Rs 16,500 crore, says the analysis adding that the overall size of the sector, which would include the rural and semi-urban market, would grow to Rs 85,000 crore. Over the years the FMCG sector has registering an increase of double digit per cent. Currently, the urban market for FMCG is growing at an annual growth rate of around 20 per cent while the growth for semi-urban and rural areas is less than 10 per cent, says the analysis. Though the semi-urban and urban market for FMCG would grow larger, according to the analysis, it is bound to put a severe pressure on the margins of manufacturers of FMCG products due to intense competition. With 12.2% of the world population living in the villages of India, the Indian rural FMCG market is something no one can overlook. More focus on farm sector will boost the rural income thus providing better growth prospects to the FMCG companies. Better infrastructure facilities will improve their supply chain. Also, with rising income and growing consumerism, FMCG sectors are likely to benefit. Growth potential for all the FMCG companies is huge as the per capita consumption of almost all products in the country is amongst the lowest in the world. Further, if these companies can change consumers mindset and offer new generation products, they would be able to generate higher growth in the future. Other Major market playersTHE TOP 10 COMPANIES IN FMCG SECTOR 1. Hindustan Unilever Ltd. 2. ITC (Indian Tobacco Company) 3. Nestle India 4. GCMMF (AMUL) 5. Dabur India 6. Asian Paints (India) 7. Cadbury India 8. Britannia Industries 9. Procter & Gamble Hygiene and Health Care 10. Marico Industries

Indian Tobacco Company Ltd. PGDM IB Roll No.29

The companies mentioned are the leaders in their respective sectors. The personal care category has the largest number of brands, i.e., 21, inclusive of Lux, Lifebuoy, Fair and Lovely, Vicks, and Ponds. There are 11 HLL brands in the 21, aggregating Rs. 3,799 crore or 54% of the personal care category. Cigarettes account for 17% of the top 100 FMCG sales, and just below the personal care category. ITC alone accounts for 60% volume market share and 70% by value of all filter cigarettes in India. The foods category in FMCG is gaining popularity with a swing of launches by HLL, ITC, Godrej, and others. This category has 18 major brands, aggregating Rs. 4,637 crore. Nestle and Amul slug it out in the powders segment. The food category has also seen innovations like softies in ice creams, chapattis by HLL, ready to eat rice by HLL and pizzas by both GCMMF and Godrej Pillsbury. This category seems to have faster development than the stagnating personal care category. Amul, India's largest foods company, has a good presence in the food category with its ice-creams, curd, milk, butter, cheese, and so on. Britannia also ranks in the top 100 FMCG brands, dominates the biscuits category and has launched a series of products at various prices. In the household care category (like mosquito repellents), Godrej and Reckitt are two players. Goodknight from Godrej, is worth above Rs 217 crore, followed by Reckitt's Mortein at Rs 149 crore. In the shampoo category, HLL's Clinic and Sunsilk make it to the top 100, although P&G's Head and Shoulders and Pantene are also trying hard to be positioned on top. Clinic is nearly double the size of Sunsilk. Dabur is among the top five FMCG companies in India and is a herbal specialist. With a turnover of Rs. 19 billion (approx. US$ 420 million) in 2005-2006, Dabur has brands like Dabur Amla, Dabur Chyawanprash, Vatika, Hajmola and Real. Asian Paints is enjoying a formidable presence in the Indian sub-continent, Southeast Asia, Far East, Middle East, South Pacific, Caribbean, Africa and Europe. Asian Paints is India's largest paint company, with a turnover of Rs.22.6 billion (around USD 513 million). Forbes Global magazine, USA, ranked Asian Paints among the 200 Best Small Companies in the World. Cadbury India is the market leader in the chocolate confectionery market with a 70% market share and is ranked number two in the total food drinks market. Its popular brands include Cadbury's Dairy Milk, 5 Star, Eclairs, and Gems. The Rs.15.6 billion (USD 380 Million) Marico is a leading Indian group in consumer products and services in the Global Beauty and Wellness space. There is a huge growth potential for all the FMCG companies as the per capita consumption of almost all products in the country is amongst the lowest in the world. Again the demand or prospect could be increased further if these companies can change the consumer's mindset and offer new generation products. Earlier, Indian consumers were using non-branded apparel, but today, clothes of different brands are available and the same consumers are willing to pay more for branded quality clothes. It's the quality, promotion and innovation of products, which can drive many sectors.

Indian Tobacco Company Ltd. PGDM IB Roll No.29

INDIAN TOBACCO COMPANY LTD. - COMPANY PROFILE ITC is one of India's foremost private sector companies with a market capitalization of nearly US $ 18 billion and a turnover of over US $ 5.1 Billion. ITC is rated among the World's Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes magazine, among India's Most Respected Companies by BusinessWorld and among India's Most Valuable Companies by Business Today. ITC also ranks among India's top 10 `Most Valuable (Company) Brands', in a study conducted by Brand Finance and published by the Economic Times. ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Personal Care, Stationery, Safety Matches and other FMCG products. While ITC is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery. As one of India's most valuable and respected corporations, ITC is widely perceived to be dedicatedly nation-oriented. Chairman Y C Deveshwar calls this source of inspiration "a commitment beyond the market". In his own words: "ITC believes that its aspiration to create enduring value for the nation provides the motive force to sustain growing shareholder value. ITC practices this philosophy by not only driving each of its businesses towards international competitiveness but by also consciously contributing to enhancing the competitiveness of the larger value chain of which it is a part." ITC's diversified status originates from its corporate strategy aimed at creating multiple drivers of growth anchored on its time-tested core competencies: unmatched distribution reach, superior brand-building capabilities, effective supply chain management and acknowledged service skills in hoteliering. Over time, the strategic forays into new businesses are expected to garner a significant share of these emerging high-growth markets in India. ITC's Agri-Business is one of India's largest exporters of agricultural products. ITC is one of the country's biggest foreign exchange earners (US $ 3.2 billion in the last decade). The Company's 'e-Choupal' initiative is enabling Indian agriculture significantly enhance its competitiveness by empowering Indian farmers through the power of the Internet. This transformational strategy, which has already become the subject matter of a case study at Harvard Business School, is expected to progressively create for ITC a huge rural distribution infrastructure, significantly enhancing the Company's marketing reach. ITC's wholly owned Information Technology subsidiary, ITC Infotech India Limited, is aggressively pursuing emerging opportunities in providing end-to-end IT solutions, including eenabled services and business process outsourcing. ITC's production facilities and hotels have won numerous national and international awards for quality, productivity, safety and environment management systems. ITC was the first company in India to voluntarily seek a corporate governance rating. ITC employs over 24,000 people at more than 60 locations across India. The Company continuously endeavors to enhance its wealth generating capabilities in a globalizing environment to consistently reward more than 3,81,000 shareholders, fulfill the aspirations of its stakeholders and meet societal expectations. This over-arching vision of the company is expressively captured in its corporate positioning statement: "Enduring Value. For the nation. For the Shareholder."

Indian Tobacco Company Ltd. PGDM IB Roll No.29

Directors Overview: The Directors report to the shareholders basically contains an overview of the Companys performance in the fiscal year. It elaborates on the important numbers related to the Profits, Equity, Debts, Assets and Liabilities and gives a brief description of the Companys financial health in its sector. It also provides a description on the internal functioning of the company as in the various businesses run by the company, its impact on the shareholders and it also considers the risk factor into consideration. Auditors Report: The auditing for HM was carried out by Deloitte Haskins & Sells. The Auditors Report is directed to the members of ITC Ltd. They attached the Balance Sheet, P&L account and the Cash Flow of the company for the year ended on that date. They make use of accounting Standards as accepted in India for the purpose of auditing and provide a reasonable basis for their statements. They conduct the audit in compliance with the Accounting Standards mentioned in the Companies Act, 1956. Reason for selecting Indian Tobacco Company Ltd. ITC Ltd. is one of the top performing companies in its sector. Also it is one of the oldest companies that exist in India. ITC Ltd. journey into the current business scenario show its exemplary performance and success in sustaining and diversifying. ITC is also one of the few Indian companies who believe in sustainable growth and inclusion. As I would be interning with ITC this summer, I took the opportunity to know about the company better in this assignment.

Indian Tobacco Company Ltd. PGDM IB Roll No.29

Ratios Calculated:

A 1 2 3 B 1 2 3 C 1 2 3 D 1 2 3 4 5 6 7 E 1 2 3 4 5
6

Liquidity Ratios Current Ratio Quick Ratio Absolute Cash Ratio Leverage Ratios Debt-Equity Ratio Debt- Asset Ratio Interest Coverage Ratio Turnover Ratios Debtors Turnover Ratio Fixed Assets Turnover Ratio Total Assets Turnover Ratio Profitability Ratios Gross Profit Margin Ratio Net Profit Margin Ratio EBITDA Margin Operating Expense ratio Return on Capital Employed Return on Total Assets Return on Equity Valuation Ratios EPS (Basic and Diluted) Price-Earnings Ratio Book Value of Share Dividend per Share Dividend Yield Ratio Dividend Payout Ratio

Indian Tobacco Company Ltd. PGDM IB Roll No.29

ITC Ltd. RATIO ANALYSIS Liquidity Ratios

Liquidity R a atios
Definition: Current Ratio

2011

2010

Current Assets Current Liabilities

1.18

10183.97 8562.78

1.01

8127.92 8049.08

Quick Ratio

Current Assets Inventory Current Liabilities

0.574

10183.97

5267.53 8562.78

0.45

8127.92 - 4549.07 8049.08

Cash Ratio

Cash and Cash Equivalents + Short term investments Current Liabilities

0.262

2243.24 8562.78

0.14

= 1126.28 8049.08

Current ratio The current ratio of 1.18 times says that the company is in relatively good short-term financial standings. Also, the ratio has increased over the last year. The ratio is an indication of a company's ability to meet short term debt obligations; the higher the ratio, the more liquid the company is. The reason why the ratio increases mainly is because of a more than proportionate increase of the Current Assets when compared to the Current Liabilities. Industry average: 0.41 Considering the industry average of the FMCG companies, it is evident that ITC is doing an excellent job of maintaining liquidity. Therefore this is a sign of a company in good financial health.

Indian Tobacco Company Ltd. PGDM IB Roll No.29

Quick ratio The small Quick ratio, i.e. 0.57 times says that the company's financial strength is not so strong. In general, a quick ratio of 1 or more is accepted by most creditors; however, quick ratios vary greatly from industry to industry and ITC does not have as such any worries in getting creditors. ITC has strong financial positions in many other aspects. The company has also shown an increasing trend in the liquidity ratio over the years. The current assets (less inventories) have again increased more than proportionately reflecting in an increasing liquidity ratio. Also it can be noticed that the ratio has increased from previous where the value was 0.45. Industry average - 0.26 Considering the industry average, we see that ITC has been doing really well relatively. As quick ratios vary significantly depending on the industry, comparing the industry average with ITCs ratio makes ITCs financial health look strong and on a growth path. Cash ratio The cash ratio of 0.26 times says that the company is not in the position to very quickly liquidate its assets and cover short-term liabilities. But there is no such liquidity need for the company and so the small value of the ratio has no such important implications. (The ratio is of interest to short-term creditors). The absolute cash ratio follows more or less the same trend as the other two liquidity measures. The increase again is because of a more than proportionate increase in the cash items (and near cash items) of ITC Limited. But the ratio has almost doubled from last years results i.e. 0.14. This means that even though it is on the lower side, ITC will be able to liquidate more easily.

Indian Tobacco Company Ltd. PGDM IB Roll No.29

LEVERAGE RATIOS
These are Structural Ratios are based on the proportions of debt and equity in the financial structure of the firm.

Debt Ratios
Definition: Debt(Shareholders fund + Loan funds) Assets

20112@)22 2011 2010

2010

Debt asset ratio

0.63

16052.47 25417.1

0.616

14172.09 23006.18

Interest Coverage Ratio

Earnings Before Interest and Taxes Interest Expense Schedule 17, Page 107

123.6

7209.84 58.32

81.4

5942.31 73

Debt/Equity Ratio

Debt (Loan Funds) Equity (Shareholders Funds)

0.006

99.20 15953.27

0.007

107.71 14064.38

Fixed Charge coverage ratio

PBIT + Depreciation interest + (repayment of loan)/1-tax rate

NA

NA

DEBT EQUITY RATIO The debt-to-equity ratio offers one of the best pictures of a company's leverage. The higher the figure, the higher is the leverage the company enjoys. The ratio of 0.006 times, which means that the company has not been aggressive in financing its growth with debt. Thus its earnings are stable. The company has better support from the shareholders. The ratio has come down from the previous year which was pegged at 0.007. Over the years, ITC Limited has shown a mix-match of the debt-equity ratio.

Indian Tobacco Company Ltd. PGDM IB Roll No.29

DEBT / ASSETS RATIO The company exhibits high debt/asset ratio which shows that its assets are financed mainly by debt rather through equity. Also it has been seen that the company has very high debt to equity ratio. And the ratio has increased from 2010 to 2011 which indicates that along with the rise in assets the debt has also increased by large numbers. It was 0.61 for FY10 and 0.63 for FY11. The industry analysis shows that the debt to assets ratio should be fairly low thereby stressing the fact that majority firms are financing assets by equity. INTEREST COVERAGE RATIO The interest coverage ratio is a measurement of the number of times a company could make its interest payments with its earnings before interest and taxes. Lower the ratio, higher is the companys debt burden. This is measured as the ratio between the profit before interest and taxes to the interest amount paid that year. The ratio of 123.6 times is magnificently very high and hence the company has very sound financial position. It will have no hassles of paying interests over its loans. Also it is observed that the ratio has increased since the previous year from 81.4. On an average industry basis it is generally observed that FMCG companies have a higher interest coverage ratios. Fixed Charges Coverage Ratio and Debt Service Coverage Ratio could not been calculated as there are no Preference Dividends.

Indian Tobacco Company Ltd. PGDM IB Roll No.29

TURNOVER RATIOS Turnover Ratios measure the asset management efficiency of the company.

Turnover ratios

2011

2010

Inventory Turnover Ratio

Sales Inventory

5.81

30604.39 5267.53

5.77

26259.60 4549.07

Fixed Assets Turnover Ratio

Net Sales Fixed Assets Schedule 6 Pg.86 Net Sales Average Total Assets

2.2

21167.58 9678.47

1.98

18153.19 9151.39

Total Assets Ratio

1.25

21167.58 16854.32

1.21

18153.19 14957.10

Asset to Equity Ratio

Total Assets Owners' Equity

1.05

16854.32 15,953.27

1.06

14957.10 14064.38

no. of days in inventory

365 Inventory turnover

62.82

365 5.81

63.25

365 5.77

debtors turnover ratio Schedule 9 Pg.103

Net sales Average debtors

23.33

21167.58 907.2

21.15

18153.19 858.07

Average collection period

365 debtors turnover

15.64

365 23.33

17.25

365 21.15

Indian Tobacco Company Ltd. PGDM IB Roll No.29

Inventory turnover ratio: This ratio is used to measure how quickly a company is selling its inventory. A high inventory turnover ratio shows that a company may be losing out on potential sales because it does not keep enough stock. The ratio of 5.81 times signifies that the company is efficient in selling its stocks. Also the ratio has grown more since the last year, making ITC more efficient. Industry Average: 5.44 Also it is noticed that ITC has a slightly higher ratio as compared to the industry average, which also supports the fact that they have efficient operations, and they do not suffer from stock outs. Debtors Turnover Ratio: This ratio shows how many times sundry debtors turn over during the year. The higher the ratio better is the efficiency of credit management. The ratio of 23.33 times signifies that the company is getting good returns and has no visible risk but benefits out of its debtors. The ratio has increased from previous years 21.15. Industry Average: 5.55 Considering the industry average for receivables turnover ratio, ITC is far exceeding the standards and is doing extremely well. Average Collection Period The debt collection period of 15.64 days is quiet good and the company is efficient in getting back its dues.It indicates the number of days; worth of credit sales that is locked in sundry debtors. Also it is noticed that the no. of days since the last year have come down. In 2010 it was 17.25, which remains a good sign for ITC. Creditors turnover Ratio is not calculated as there are no Credit Purchases. Fixed Assets Turnover ratio: It measures sales per rupee of investment in fixed assets. This ratio measures the efficiency with which fixed assets are employed. A higher ratio indicates a high degree of efficiency in asset utilization and a low ratio reflects inefficient use of assets. The ratio of 2.2 times signifies that the company is very efficiently utilizing its fixed assets for generating sales revenue. Also an increase in the ratio is observed since the last years value of 1.98 which shows higher utilization. Industry average: 0.38 This shows that ITC is doing relatively well, as compared to its counterparts in the industry. Total Assets Turnover ratio:

Indian Tobacco Company Ltd. PGDM IB Roll No.29

This ratio measures the efficiency of assets employed. The companys asset management is more than the industry standards of 0.78 times compared with 1.21 times in the last year and 1.25 times in FY11. Therefore ITC displays efficiency there as well.

PROFITABILITY RATIOS Profitability Ratios reflect the business operations.

2011

2010

Gross Profit Margin

Gross Profit*100 Net Sales

34.33

726816 21167.58

33.1

601531

18153.19

ROTA Ratio

Net profit after tax Average Total Assets

0.29

4987.61

0.27

4061.00

16854.32

14957.10

Return on Equity Ratio

PAT - preference dividends Average Owners' Equity

0.312

4987.61

0.288

4061.00

15953.27

14064.38

Earnings Power Ratio

Earnings Before Interest and Taxes Average Total Assets

1.81

30604.39 16854.32

1.75

26259.60 14957.10

EBITDA ratio

EBITDA Net sales

0.374

7924.15 21167.58

0.36

6624.02 18153.19

Net profit margin

Net profit Net sales

0.23

4987.61 21167.58

0.22

4061.00

18153.19

Indian Tobacco Company Ltd. PGDM IB Roll No.29

Gross Profit Margin The ratio between the profit before interest and taxes (equal to the operating income, in our case) to that of the sales for the given period during which the profit has been earned is a measure of the profitability of the company for that period. The Profit margin of 34.33% is quiet impressive and the company is making good profits. ITC Limited has done well in the last few years and has continuously reported higher and higher profit every subsequent time. The sales of the company have also experienced a similar trend that has led to the expansion of profit. Because the growth in the two components has nearly been equal, the ratio between them has not changed significantly. Last year the margin was 33.1%, therefore there has been a slight improvement in the profit margins. Industry Average: 13.39 Considering the industry average margin, it is observed that ITC has a significant higher margin. This also indicates that the company is making higher amounts of profit.

Net Profit Margin Ratio PAT or the profit after tax is directly correlated with the profit before tax. The interest component is the sole parameter that can differentiate the trend followed by the ratio above and this one. The net margin of 23% is quiet impressive, and the company is performing well. PAT for ITC Limited, like PBIT, has shown an upward trend. The financing decisions and also the tax have altered the overall impact on the profitability of the company. The percentage has also improved since last years 22% showing an upward trend. Industry Average: 26.4% We also observe that as per the industry standards, ITC is some notches below. This could mean that ITC needs to take some corrective measures. Return on Total Assets: The return on Total Assets is yet another method of calculating the return of the company. This is calculated by taking the ratio between the PBIT (Profit before Interest and Taxes) to the Total Assets of the company. Earning power of the company, i.e. 29% is quiet good and the company is doing well. Even last year in 2010, ITC had a ROTA of 27%. Industry Average: 25.7% ITC Ltd. also exceeds the industry standards of 25.7% but quite a margin, therefore suggesting that the company is getting good returns on the assets that have been invested.

Indian Tobacco Company Ltd. PGDM IB Roll No.29

EBITDA Margin: This ratio indicates the operating efficiency of the firm. It has increased from 36% in the last year to 37.4% in FY11 due to a increase in Profit Before tax. Therefore we observe that the operating efficiency of ITC has increased over the last one year. Industry Average: 25.36% (for last 5 years) ITC has exceeded the industry average for EBITDA margin as well. This indicates that the operations of the company are far more effective than its competitors.

Indian Tobacco Company Ltd. PGDM IB Roll No.29

VALUATION RATIO

Market Ratios
Definition: Earnings per Share (EPS) Ratio

2011

2010

Net Income Average Number of Common Shares

6.49

4987.61 7680673807

5.33

4061 7611844333

Price-Earnings Ratio

Market Price per Share Earnings per Share

34.8

226 6.49

30.01

160 5.33

Market Value to Book Value Ratio

Market Price per Share Book value per share

10.71

226 21.1

8.46

160 18.9

Book value of share Schedule 17 Pg. 107

Total assets - Misc expenditure Total no. of shares

21.1

16854.32647.98

18.9

14957.10549.33 7611844333

7680673807

Indian Tobacco Company Ltd. PGDM IB Roll No.29

Earnings Per Share: Earnings per share, as it is called, are a company's profit after tax (PAT) divided by its number of outstanding (equity) shares. It is therefore measured as the portion of a company's profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company's profitability. In comparison to the face value of Re.1/share the EPS of Rs.6.49 is very good. Also the company has done better as compared to last years value of Rs.5.51. The industry average remains at 8.61. Therefore ITC offers less EPS as per the industry, but still does a decent job the ratio. Price-Earnings Ratio: Price-Earnings ratio is a measure of the price paid for a share relative to the income or profit earned by the firm per share. A higher P/E ratio means that investors are paying more for each unit of income. ITC has a PE ratio of 34.8, which means that the shares of ITC might not be very attractive. Industry Average: 8.87 As already mentioned, ITCs shares might not be very attractive to investors. As seen by the industry standards also, ITCs PE ratio is extremely high.

Book Value per Share: BV is considered to be the accounting value of each share, drastically different than what the market is valuing the stock at. The book value, i.e. Rs.21.1 is far higher than the face value of each share, i.e. Re.1.00. Here diluted value in considering numbers of shares is not considered. Market to Book Value ratio The book-to-market ratio attempts to identify undervalued or overvalued securities by taking the book value and dividing it by market value. In basic terms, if the ratio is above 1 then the stock is undervalued; if it is less than 1, the stock is overvalued. For ITC the value is 10.71 which makes the shares really undervalued. Also as compared to last year the undervaluing has increased.

Indian Tobacco Company Ltd. PGDM IB Roll No.29

Yield Ratio
Definition: Dividend Yield Ratio

2011

2010

Dividend per share*100 Market Price per share Pg. 28

1.96

4.45*100 226

6.25

10.00*100 160

Dividend payout Ratio

Dividend Per Share*100 Earnings per Share

68.56

4.45*100 6.49

187.6

10.00*100 5.33

DIVIDEND YIELD RATIO

Dividend yield is a way to measure how much cash flow you are getting for each rupee invested in an equity position. So higher the ratio, better the cash flow. We notice that for FY10, the ratio was very high as compared to FY11. It has gone down from 6.25 to 1.96. Therefore the cash flow has decreased for ITC. Industry Average: 1.53 Considering the industry average, ITC is still quite ahead of its competitors in providing a steady cash flow to its investors. DIVIDENT PAYOUT RATIO A very low payout ratio indicates that a company is primarily focused on retaining its earnings rather than paying out dividends. The payout ratio also indicates how well earnings support the dividend payments: the lower the ratio, the more secure the dividend because smaller dividends are easier to pay out than larger dividends. So the value of 0.68 times is quiet decent. But last years ratio was on the higher side, which means that ITC was not focusing on retaining its earnings. Industry Average: 53.7% ITC is giving out more dividends as compared to its competitors; this means that they want to keep their investors happier.

Indian Tobacco Company Ltd. PGDM IB Roll No.29

TREND ANALYSIS

Price to Earnings Raio

35 30 25 PE VALUE 20 15 10 5 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 11.4 16.2 18.2 32.1 20.9 24.9 21.4 24.7 28.2

PE 14.5

Earnings Per Share

7 6 5 EPS in Rs 4 3 2 1 0 EPS 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1.6 1.8 2.1 2.5 3 3.6 4.1 4.3 5.3 6.4

Source for Historical Values: http://www.itcportal.com/shareholder/key-ratios.aspx

Indian Tobacco Company Ltd. PGDM IB Roll No.29

Cash flow statement analysis

Cash flow from operating activities: ITC Ltd. has given us the cash from operations. The initial information talks about the profit and loss adjustment. The profits for 2010 were 6015.31 and for the yr 2011, it has increased to 7268.16. The increase in profits is mostly because of an increase in interest income from both on long term and current investments. The profits are also made from the sale of current investments and long term investments. Doubtful and bad advances have also been reduced. The company has adopted similar credit policy as compared to last year and that is why the sundry debtors have just slightly increased from 858 to 907. The inventory has also not increased much, i.e. in FY10, it was 4549 which is now 5267. The trade payables have increased from 530 to 918. Overall, the company has given similar credit and even enjoyed sufficient credit from its suppliers and so the net cash from operating activities has been balanced because in yr 2010, it was 4641 which has marginally increased to 5264. Cash flow from investing activities: The company has invested in purchase of fixed assets. This amount has been financed partly by sale of fixed assets and from the same proceeds of investments. The company again has purchased investments maybe at the end of the yr because the interest received has reduced by half compared to 2010. It has also purchased long term investments. The company has made investments in joint ventures and reduced investments in its subsidiaries as compared to the previous year. Cash has also been generated by selling long term investments from 66.47 in 2010 to 103.58. Also the income received from current and long term investments has also increased slightly. Also ITC has reduced the loans that it gave last year from 811 to 239. Overall, the amount used in investing activities has reduced substantially from 3542 to 616. Cash flow from financing activities: It gives us the information about the amount of money either raised or used which could be equity or debt. For ITC, it can be observed that the company has chosen to finance itself through share capital. Therefore we notice an increase since last year, from 720 to 903. The company has tried to reduce its long term borrowing from 1.85 to 1.40. There also has been a decrease in repayment of long term borrowings. We notice that ITC has extended credit facilities to quite an extent. Overall, we can conclude that the company has invested largely in the purchase of fixed assets. This amount has been raised by funds from operating activities, from financing activities as well as availability of cash in hand, with scheduled banks and FDs. This indicates that the company is planning

Indian Tobacco Company Ltd. PGDM IB Roll No.29

for expansion and so, the positives or negative impact of this expansion should be evaluated in the future cash flow statements.

Impact of Budget on FMCG Sector in 2012

The rise in excise duty will have a negative impact on FMCG companies, which FMCG companies will
pass on to consumer. Budget imposed an additional ad-valorem excise on cigarettes, while keeping the fixed rate structure constant. The additional levy is at the rate of 10 per cent on 50 per cent of retail selling price (MRP), which effectively works out to 5 per cent of MRP. This additional levy is on cigarettes above 65mm of length, which covers almost the entire cigarette portfolio of ITC. ITC may go for medication of length of some of its lower-end brands (reduce the length to sub-65mm) to avoid the additional levy on some part of its portfolio. The increase in excise duty on bidis and cigarettes would narrow the price gap for cigarette products, which is positive for ITC. However, ad valorem imposition is a negative development for the cigarette industry. The budget was neutral for the FMCG sector. Even, increase in tax slab will not yield much, as it will just give Rs 2000 more in the hands of consumer. Bad news is the rise in excise duty by 200 bps to 12 per cent will bring future margin pressure on FMCG sector, which is already under pressure due to input price inflation. But the sector will go for necessitate price hike.

Indian Tobacco Company Ltd. PGDM IB Roll No.29

References
http://www.rediff.com/business/report/budget-2012-sector-fmcg-prices-may-rise/20120317.htm http://www.itcportal.com/about-itc/ http://www.investopedia.com/terms/ http://www.reuters.com/finance/stocks/financialHighlights?symbol=ITC.NS http://www.moneycontrol.com/financials/itc/ratios/ITC http://money.livemint.com/IID64/F100875/Financial/Ratios/Company.aspx