As rupee goes up in smoke, ITC is raking it in this year

Tobacco-to-hotels and consumer goods major ITC is a rare consumer company to benefit from the rupee’s depreciation. Analysts are expecting a 25 percent compounded annual growth rate (CAGR) for ITC’s non-cigarettes business over the period FY11 to FY13 (2010-2013). This is expected to come primarily by a 31 per cent CAGR reduction in FMCG losses, earnings before interest and taxation (EBIT) of 22 percent CAGR in the hotels business and EBIT of between 15-17 per cent CAGR in paperboards and agri-business.

ITC posted non-cigarette EBIT of 25 percent CAGR over the past five years and EBIT of 27.4 percent in the first half of FY12 (2011-12). It’s third quarter results are due on 20 January.

A recent Motilal Oswal report on ITC says the rupee depreciation will also provide a major upside, as ITC gains due to net exports of Rs 1,800 crore and higher margins on the paper business. “We expect that for every one percent depreciation of the rupee, ITC’s earnings per share will increase by 0.4 percent,” the report says.

Analysts are expecting a 25 percent compounded annual growth rate for ITC’s non-cigarettes business between 2010 and 2013. Reuters

On the dividend payout ratio, Motilal Oswal says there is a strong case for the company’s dividend payout ratio being higher than in the past, since capital expenditure as a proportion of cash flows has declined sharply to 18-19 percent from 62 percent. ITC’s payout had jumped from 45-50 percent till FY09 to as much as 115 percent and 80 percent in FY10 and FY11 respectively, because of one-time dividend payments.

“We expect ITC to post 19 percent profit after tax CAGR over FY11-13 powered by 17 percent growth in cigarette EBIT and 24 percent EBIT growth in its non-cigarette businesses,” the report adds.

ITC posted a cigarette EBIT CAGR of 15 percent since 2000 despite excise CAGR of 9.2 percent. ITC has already taken a pre-emptive price increase of 2percent in December, as the budget draws near.