ITC Ltd: Financial ratios and DuPont analysis

A Report on
Financial Ratios and DuPont Analysis of ITC Ltd.

Post-Graduate Diploma in Management - Finance

By

Damandeep Singh Dhinsa

&
Kunal Matani

Under the guidance of

Prof. (CA) Parul Shrivastava

IPER-PGDM

Institute of Professional Education and Research

24th August 2010

1
 ITC Ltd: Financial ratios and DuPont analysis

ITC Profile

ITC is one of India's foremost private sector companies with a market capitalisation of over US $
22 billion and a turnover of US $ 6 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 ranks among India's `10 Most Valuable (Company) Brands',
in a study conducted by Brand Finance and published by the Economic Times. ITC also ranks
among Asia's 50 best performing companies compiled by Business Week.

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

2
 ITC Ltd: Financial ratios and DuPont analysis

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 Ltd, provides IT
services and solutions to leading global customers. ITC Infotech has carved a niche for itself by
addressing customer challenges through innovative IT solutions.

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 26,000 people at more than 60 locations across India. The Company
continuously endeavors to enhance its wealth generating capabilities in a globalising
environment to consistently reward more than 3,73,000 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."

ITC Way

ITC is a board-managed professional company, committed to creating enduring value for the
shareholder and for the nation. It has a rich organisational culture rooted in its core values of
respect for people and belief in empowerment. Its philosophy of all-round value creation is
backed by strong corporate governance policies and systems.

ITC’s corporate strategies are :

 Create multiple drivers of growth by developing a portfolio of world class businesses that
best matches organisational capability with opportunities in domestic and export markets.

3
 ITC Ltd: Financial ratios and DuPont analysis

 Continue to focus on the chosen portfolio of FMCG, Hotels, Paper, Paperboards &
Packaging, Agri Business and Information Technology.
 Benchmark the health of each business comprehensively across the criteria of Market
Standing, Profitability and Internal Vitality.
 Ensure that each of its businesses is world class and internationally competitive.
 Enhance the competitive power of the portfolio through synergies derived by blending
the diverse skills and capabilities residing in ITC’s various businesses.
 Create distributed leadership within the organisation by nurturing talented and focused
top management teams for each of the businesses.
 Continuously strengthen and refine Corporate Governance processes and systems to
catalyse the entrepreneurial energies of management by striking the golden balance
between executive freedom and the need for effective control and accountability.

Corporate Governance

Preamble
Over the years, ITC has evolved from a single product company to a multi-business corporation.
Its businesses are spread over a wide spectrum, ranging from cigarettes and tobacco to hotels,
packaging, paper and paperboards and international commodities trading. Each of these
businesses is vastly different from the others in its type, the state of its evolution and the basic
nature of its activity, all of which influence the choice of the form of governance. The challenge
of governance for ITC therefore lies in fashioning a model that addresses the uniqueness of each
of its businesses and yet strengthens the unity of purpose of the Company as a whole.

Since the commencement of the liberalisation process, India's economic scenario has begun to
alter radically. Globalisation will not only significantly heighten business risks, but will also
compel Indian companies to adopt international norms of transparency and good governance.
Equally, in the resultant competitive context, freedom of executive management and its ability to
respond to the dynamics of a fast changing business environment will be the new success factors.
ITC's governance policy recognises the challenge of this new business reality in India.

4
 ITC Ltd: Financial ratios and DuPont analysis

Definition and Purpose

ITC defines Corporate Governance as a systemic process by which companies are directed and
controlled to enhance their wealth generating capacity. Since large corporations employ vast
quantum of societal resources, we believe that the governance process should ensure that these
companies are managed in a manner that meets stakeholders aspirations and societal
expectations.

Core Principles

ITC's Corporate Governance initiative is based on two core principles. These are :

 Management must have the executive freedom to drive the enterprise forward without
undue restraints; and
 This freedom of management should be exercised within a framework of effective
accountability.

ITC believes that any meaningful policy on Corporate Governance must provide empowerment
to the executive management of the Company, and simultaneously create a mechanism of checks
and balances which ensures that the decision making powers vested in the executive
management is not only not misused, but is used with care and responsibility to meet stakeholder
aspirations and societal expectations.

Cornerstones
From the above definition and core principles of Corporate Governance emerge the cornerstones
of ITC's governance philosophy, namely trusteeship, transparency, empowerment and
accountability, control and ethical corporate citizenship. ITC believes that the practice of each of
these leads to the creation of the right corporate culture in which the company is managed in a
manner that fulfils the purpose of Corporate Governance.

5
 ITC Ltd: Financial ratios and DuPont analysis

Product Line

FMCG - Cigarettes
The Company’s relentless focus on providing world-class products to consumers enabled it to
sustain its leadership position in the industry. Innovation and consumer centricity have enabled
the business to deliver superior value through its brand portfolio of well crafted blends,
contemporary packaging styles and use of state-of-the-art manufacturing technology. Several
initiatives across the brand portfolio in terms of pack modernization, improvement in smoke
profile and introduction of new brands and variants such as ‘Lucky Strike’, ‘Classic Menthol
Rush’, ‘Gold Flake SLK’ during the quarter have bolstered the Company’s market standing in
the premium categories and improved overall market share. The business is also test marketing
its products in the new ‘micro filter’ segment (length not exceeding 60mm). On the
manufacturing front, the business commenced operations at its new facility in Ranjangaon, Pune.
Investments continued to be made towards enhancement of quality, productivity and variety.

The cause for concern, however, remains the severe taxation and regulatory milieu for cigarettes
in India. The already high and punitive tax incidence on cigarettes in India was further
exacerbated with a steep increase of 17% in excise duties in the Union Budget 2010, increases in
VAT rates and new Entry Tax imposts by several States. Consequently, industry volumes have
come under severe pressure.

The vacuum created by the exit of the popular low priced micros and plain non-filter cigarettes
(in the wake of the heavy imposition of excise duties in 2008) provided the headroom for tax-
evaded cigarettes to enter the market in a big way. These tax-evaded cigarettes sell in the market
at prices that do not even cover the cost of taxes payable thereon. Such cigarettes, estimated to
constitute more than 8% of the Indian market, not only deprive the legitimate industry of
revenues and profits that it rightfully deserves but also deny the Exchequer of its fair share of
taxes. It is imperative that the authorities strengthen enforcement to eliminate this fast growing
illegal industry.

The cigarette industry continues to be impacted by the graphic statutory warnings on retail
packages of tobacco. Such graphic warnings, which are more impactful on cigarettes than on
other forms of tobacco by virtue of the design specifications, have placed cigarettes in a
disadvantageous position. Such regulations and others like the ban on smoking in public places

6
 ITC Ltd: Financial ratios and DuPont analysis

together with the high incidence of tax on cigarettes encourage consumers to shift to cheaper and
lightly taxed tobacco products.

Despite the current challenging market conditions, the Company remains confident of leveraging
its internationally benchmarked product quality, the resilience of its brands and the superiority of
its competitive strategies to retain its leadership position in the industry.

Branded Packaged Foods

The Branded Packaged Foods business continued to expand with sales growing by 34% during
the quarter. Improved realisations, richer product mix and active cost management across the
supply chain resulted in enhanced value capture.

The ‘Bingo!’ range of potato chips and finger snacks continued to gain consumer franchise with
strong growth in revenues. The exciting range of variants was further augmented with the launch
of ’Oye Pudina’ during the quarter. Clutter-breaking advertising and brand promotions continue
to maintain buzz around the brand.

Sales of ‘Sunfeast’ biscuits grew by 43% during the quarter alongwith product mix
improvement, with sales of value-added variants of cookies and creams growing significantly.

In the Staples category, ‘Aashirvaad’ atta consolidated its leadership position with sales growing
by 21% on the back of improved realisations and higher volumes. Confectionery category
revenues grew by 25% supported by the launch of an orange variant of ‘mint-O Gol’ and
increasing consumer franchise for Eclairs and Lactos.

The business is investing in manufacturing and distribution infrastructure to support larger scale
in view of the growing demand for its products. The business continues to focus on supply chain
improvements to enhance product freshness, market servicing and margins.

7
 ITC Ltd: Financial ratios and DuPont analysis

Personal Care Products

The Personal Care business continued to make significant progress in gaining consumer
franchise with revenues growing by 86% during the quarter. Product offerings under the
‘Essenza Di Wills’, ‘Fiama Di Wills’, ‘Vivel Di Wills’, ‘Vivel’ and ‘Superia’ brands continue to
focus on enhancing consumer benefits.

The business made a foray into the fast growing and relatively under-penetrated domestic skin
care market with the launch of ‘Vivel Active Fair Cream’ in June 2010 in select markets. The
product, with its unique"Fairness Lock System" seeks to deliver superior consumer benefits in
the form of faster and longer-lasting fairness and higher levels of sun protection. It has a SPF 15
sun protection rating.

The business sustained its impressive growth in the Soaps category achieving a volume market
share of 5%. Product portfolio was enlarged with new offerings in the freshness segment with the
launch of ‘Vivel Deo Spirit’.

Currently, brands ‘Vivel’ and ‘Superia’ are each estimated to be more than Rs 200 crores per
annum in terms of consumer spend.

The business is investing in building a strong portfolio of products and brands through well-
defined research and development strategies backed by the Company’s state-of-the-art R&D
Centre. It is also continuously enhancing the quality of engagement with consumers through
efficient deployment of media, direct contact and promotional activities across conventional and
new age consumer connect avenues.

The business continues to leverage investments in tax-exempt manufacturing facilities at

Haridwar (Uttarakhand) and Manpura (Himachal Pradesh). Apart from fiscal benefits that will
accrue on such investments, these facilities will provide a higher degree of flexibility in
manufacturing and ensure the highest standards of product quality.

8
 ITC Ltd: Financial ratios and DuPont analysis

Education & Stationery Products

The Education & Stationery Products business registered a robust revenue growth of 30% during
the quarter. The business continues to consolidate its market leadership position in the notebook
segment while the recent additions in scholastic range are gaining traction.

The business continues to leverage its association with youth icons Yuvraj Singh and Soha Ali
Khan - brand ambassadors for the ‘Classmate’ range of products. This intervention has enhanced
the level of consumer awareness of Classmate’s growing product basket beyond its flagship
category of notebooks, namely pens, pencils, geometry boxes, markers, highlighters, copier
paper, etc.

The business continues to promote ‘Paperkraft’, its executive and office supplies stationery
brand. Working in tandem with the Paperboards & Specialty Paper Division (PSPD), the
business has positioned ‘Paperkraft’ as the finest green paper for business applications viz. copy-
scan-print-fax. Paperkraft’s green credentials are supported, among other factors, by the
Company’s membership of the prestigious Global Forest & Trade Network, an international
initiative of the WWF (World Wide Fund for Nature) and the Company’s social forestry
programme.

Hotels
The incipient recovery of the Hotels sector witnessed in the latter part of 2009/10 showed further
signs of improvement during the quarter with improved levels of foreign tourist arrivals and
domestic travel. The relatively improved business conditions were manifest in the performance
of the segment with revenues growing by 21% and segment profits by 26%.

The ITC Royal Gardenia, a 292 room luxury offering in Bengaluru launched in October 2009, is
the largest LEED (Leadership in Energy and Environmental Design) Platinum rated hotel in the
world and the first in Asia to achieve this distinction. The hotel has successfully occupied the
niche position of ‘Responsible Luxury’.

9
 ITC Ltd: Financial ratios and DuPont analysis

Construction activities of the new super luxury properties at Chennai and Kolkata are
progressing satisfactorily. In addition, several renovation programmes are underway including
addition of a new shopping arcade and room renovations at the ITC Mughal in Agra and
renovation of the ‘Dum Pukht’ restaurant in ITC Maurya, New Delhi. Several new projects
including joint ventures and management contracts are also on the anvil to rapidly scale up the
business across target market segments.

Paperboards, Specialty Papers & Packaging

The business posted an impressive performance during the quarter with segment revenues
growing by 13%. Segment results grew at a faster pace of 48% driven by a combination of
product mix enrichment, higher realisations and enhanced value capture through in-house pulp
production.

The business continued to leverage its integrated business model - access to high-quality fibre
from the economic vicinity of the Bhadrachalam mill, in-house pulp mill and state-of-the-art
manufacturing facilities on the one hand and a robust forward linkage with the Education and
Stationery Products business on the other – to further consolidate its leadership status in the
Indian Paper and Paperboards industry. In order to sustain its pre-eminent position in the
Paperboards segment, investment in a state-of-the-art machine is underway which is expected to
be operational by early 2012.

The Packaging and Printing business continues to provide strategic sourcing support to the
Cigarette, Foods and Personal Care businesses. The business also leveraged its state-of-the-art
investments in flexibles and carton lines to deliver value added packaging to key customers in
the consumer electronics and FMCG industries. Sales to external customers registered robust
growth. Investments in a new carton line are underway to cater to the growing demand in this
segment.

Agri Business

10
 ITC Ltd: Financial ratios and DuPont analysis

During the quarter, the Agri business posted a robust performance recording a revenue growth of
44% on the back of increased sales of soya, leaf tobacco and wheat. The business continues to
provide strategic sourcing support to the Company’s Cigarette and Branded Packaged Foods
business by ensuring high quality supplies. Construction activity of the new green leaf threshing
facility in Karnataka is progressing satisfactorily.

Contribution to Sustainable Development

The Company, foreseeing the unprecedented threat to sustainable development as a consequence

of societal challenges arising out of poverty, environmental degradation and climate change, has
vigorously pursued a conscious strategy to align its businesses to serve a larger societal purpose.
Unique business models have been crafted to synergistically deliver economic, environmental
and social value. The Company continues to sustain its unique position as the only company in
the world to be ‘carbon positive’, ‘water positive’ and ‘solid waste recycling positive’.

ITC's recycling initiative - christened ‘Wealth Out of Waste’ (WOW) - has been internationally
recognised by Bureau of International Recycling. WOW reaches out to schools, institutions and
homes through awareness building and source segregation of waste. There are over 100
corporates supporting WOW and more than three lakh households across southern India
participating in the initiative. In order to inculcate the habit of source segregation among young
children, WOW is spreading the idea of recycling in schools and the immediate plan is to cover
at least two lakh school children during the year 2010-11 across southern India. ITC has initiated
commemorating 1st July as National Recycling Day to create larger awareness of the importance
of recycling.

The Company continued to enlarge its social sector footprint by expanding to newer districts
during the period. It continued to focus on the three main areas of interventions under Mission
Sunehra Kal: (a) natural resource management, which includes wasteland, watershed and
agriculture development (b) sustainable livelihoods, comprising women’s economic
empowerment and genetic improvement in livestock and (c) community development, with focus
on primary education and health and sanitation. ITC is currently running social development
projects in 55 districts spread over the states of Andhra Pradesh, Kerala, Karnataka, Tamil Nadu,
Orissa, West Bengal, Bihar, Uttar Pradesh, Maharashtra, Madhya Pradesh and Rajasthan.

11
 ITC Ltd: Financial ratios and DuPont analysis

The pioneering initiative of social development projects including watershed development,

Social Forestry Programmes, Soil & Moisture conservation programmes is designed to assist
farmers in identified moisture-stressed districts, preservation of precious topsoil for agriculture
and group irrigation projects. The households covered under the Social Forestry Programme
continue to reap the benefits derived from cut plantations during the period. Towards improving
the income earning capability of the farming community, Sustainable Agricultural Practices were
continued with the promotion of organic fertiliser units through vermi-composting and NADEP
technologies. Several varieties of paddy, gram and wheat have been tested in 474 field
demonstrations leading to participative selection of higher productive strains by farmers.
Similarly, the Sustainable Livelihoods initiative of the Company strives to create alternative
employment for surplus labour and decrease pressure on arable land by promoting non-farm
incomes. Among many such activities, the programme for genetic improvement of cattle
through artificial insemination to produce high-yielding crossbred progenies has been given
special emphasis and has the potential to pull them out of poverty. Integrated animal husbandry
services addressed the needs of problem breeders, vaccines, feed additives and awareness drives.
The initiative for the economic empowerment of women also continued apace with gainful
employment being provided either in micro-enterprises or through self-employment with the
support of income generation loans.

Financial Results for the Quarter ended 30th June, 2010

Highlights

Profits from Operations : +19.6%

Pre-Tax Profits : +19.2%

Post Tax Profits : +21.8%

 Operating Profits from Non-Cigarette businesses grow 38% (Rs.265 crores in Jun ’10
from Rs.192 crores in Jun ‘09).
 Robust performance by Non-Cigarette FMCG businesses. Segment revenues up 32.2%
with improved profitability.
 Agri Business delivers strong performance with Segment revenues up 43.5% on the back
of higher sales of Soya, Leaf Tobacco and Wheat.
 Recovery continues in the Hotels segment with revenues and profits growing by 21% and
26% respectively.

12
 ITC Ltd: Financial ratios and DuPont analysis

 Strong showing by Paperboards, Paper and Packaging businesses, leveraging recent

investments in Paper and Pulp capacities. Segment revenues and profits up 13% and 48%
respectively.
 ITC completes a 100 years on August 24, 2010.

The Company posted an impressive performance during the quarter with healthy topline growth
and high quality earnings. Net Turnover at Rs. 4817 crores grew by 16% driven by the Foods,
Personal Care, Agri and Cigarette businesses. Pre-tax profits increased by 19.2% to Rs.1570
crores while Post-tax profits at Rs.1070 crores registered a growth of 21.8%. Earnings Per Share
for the quarter stood at Rs. 2.80.

Financial Results for the Quarter and Year ended 31st March, 2010

Highlights

Profits from Operations : + 26 %

Pre-Tax Profits : + 25 %

Post Tax Profits : + 24 %

 Q4 Pre-tax profit of Rs.1505 crores and Post-tax profit of Rs.1028 crores represent a
growth of 26% and 27% respectively.
 Non-cigarette FMCG segment registers robust revenue growth of 34% in Q4.
 Board recommends total Dividend of Rs.10/- per share for 2009/10 including a special
Centenary Dividend of Rs. 5.50 per share.
 Paper and Pulp investments leveraged to improve value capture and margins. Segment
results grow by 35%.
 Agri business profits up 70%.
 Sequential improvement in Hotels business revenues and profits, with growth of 16% and
10% respectively in Q4, reversing the de-growth of the first 3 Quarters of the year.
 Personal Care business launched the ‘Fiama Di Wills’ Transparent Gel bar which was
voted ‘Product of the Year’ in the soaps category based on a survey conducted by AC
Nielsen.
 The ‘ITC Royal Gardenia’ was launched in Bengaluru. It is the world’s largest and Asia’s
first LEED Platinum rated hotel.

13
 ITC Ltd: Financial ratios and DuPont analysis

 ITC's Sustainability Report 2009 was adjudged one of the best reports globally in the
'Carbon Disclosure' category by CRRA'10 (Corporate Responsibility Reporting Awards
'10).

The Company posted yet another year of impressive performance with a healthy topline growth
and high quality earnings, notwithstanding the extremely challenging economic environment,
especially in the first half of the year. Gross Turnover for the year grew by 13.5% to
Rs.26259.60 crores. Net Turnover at Rs.18153.19 crores grew by 16.3% primarily driven by a
20.9% growth in the non-cigarette FMCG businesses, a 19.8% growth in the Cigarettes business
and a 17.4% growth in the Paperboards, Paper & Packaging segment. Pre-tax profits increased
by 24.7% to Rs.6015.31 crores while Post-tax profits at Rs.4061.00 crores registered a growth of
24.4%. Earnings Per Share for the year stands at Rs.10.73 (previous year: Rs.8.66). Cash flows
from Operations stood at Rs.6620 crores during the year, compared to Rs.4706 crores in the
previous year.

For the fourth Quarter, Net Turnover at Rs 5053.79 crores registered a growth of 27.9% driven
by robust performance in Cigarettes, other FMCG businesses and the Agribusiness segment. Pre-
tax profits at Rs.1504.79 crores and Post-tax profits at Rs. 1028.22 crores grew at an impressive
rate of 26.3% and 27.1% respectively over the same Quarter last year.

ITC today is the leading FMCG marketer in India, the second largest Hotel chain, the clear
market leader in the Indian Paperboard and Packaging industry, the country’s foremost Agri-
business player and one of India’s fastest-growing Information Technology companies in the
mid-tier segment.

The Board of Directors were pleased to recommend a special Centenary Dividend of Rs.5.50 per
share in addition to the dividend of Rs.4.50 per share (previous year: Rs.3.70) for the year ended
31st March, 2010. Total cash outflow in this regard will be Rs.4452.33 crores (previous year:
Rs.1633.87 crores) including Dividend Distribution Tax of Rs.634 crores (previous year:
Rs.237.34 crores), making it one of the highest ever dividend payouts by an Indian company in
the private sector.

14
 ITC Ltd: Financial ratios and DuPont analysis

Financials:

Balance sheet

ITC
Balance Sheet
Mar '06 Mar '07 Mar '08 Mar '09 Mar '10

12 mths 12 mths 12 mths 12 mths 12 mths

In Rs. Crs.
Sources Of Funds
Total Share Capital 375.52 376.22 376.86 377.44 381.82
Equity Share Capital 375.52 376.22 376.86 377.44 381.82
Share Application Money 0 0 0 0 0
Preference Share Capital 0 0 0 0 0
Reserves 8,626.79 10,003.78 11,624.69 13,302.55 13,628.17
Revaluation Reserves 59.17 57.08 56.12 55.09 54.39
Networth 9,061.48 10,437.08 12,057.67 13,735.08 14,064.38
Secured Loans 25.91 60.78 5.57 11.63 0
Unsecured Loans 93.82 140.1 208.86 165.92 107.71
Total Debt 119.73 200.88 214.43 177.55 107.71
Total Liabilities 9,181.21 10,637.96 12,272.10 13,912.63 14,172.09
Mar '06 Mar '07 Mar '08 Mar '09 Mar '10

12 mths 12 mths 12 mths 12 mths 12 mths

Application Of Funds
Gross Block 6,227.17 7,134.31 8,959.70 10,558.65 11,967.86
Less: Accum. Depreciation 2,065.44 2,389.54 2,790.87 3,286.74 3,825.46
Net Block 4,161.73 4,744.77 6,168.83 7,271.91 8,142.40
Capital Work in Progress 399.97 1,130.20 1,126.82 1,214.06 1,008.99
Investments 3,517.01 3,067.77 2,934.55 2,837.75 5,726.87
Inventories 2,636.29 3,354.03 4,050.52 4,599.72 4,549.07
Sundry Debtors 547.96 636.69 736.93 668.67 858.8
Cash and Bank Balance 67.47 103.54 153.34 68.73 120.16
Total Current Assets 3,251.72 4,094.26 4,940.79 5,337.12 5,528.03
Loans and Advances 1,188.42 1,390.19 1,949.29 2,150.21 1,929.16
Fixed Deposits 788.35 796.62 416.91 963.66 1,006.12
Total CA, Loans &
Advances 5,228.49 6,281.07 7,306.99 8,450.99 8,463.31

15
 ITC Ltd: Financial ratios and DuPont analysis

Deffered Credit 0 0 0 0 0
Current Liabilities 2,736.95 3,113.01 3,619.76 4,121.59 4,619.54
Provisions 1,389.04 1,472.84 1,645.33 1,740.49 4,549.94
Total CL & Provisions 4,125.99 4,585.85 5,265.09 5,862.08 9,169.48
Net Current Assets 1,102.50 1,695.22 2,041.90 2,588.91 -706.17
Miscellaneous Expenses 0 0 0 0 0
Total Assets 9,181.21 10,637.96 12,272.10 13,912.63 14,172.09

Contingent Liabilities 98.72 129.56 308.08 261.36 258.73

Book Value (Rs) 23.97 27.59 31.85 36.24 36.69

Profit and loss account:

ITC
Profit & Loss account In Rs. Crs.
Mar '06 Mar '07 Mar '08 Mar '09 Mar '10

12 mths 12 mths 12 mths 12 mths 12 mths

Income
Sales Turnover 16,236.42 19,519.99 21,467.38 23,247.84 26,399.63
Excise Duty 6,438.09 7,206.16 7,435.18 8,262.03 7,832.18
Net Sales 9,798.33 12,313.83 14,032.20 14,985.81 18,567.45
Other Income 203.2 276.22 516.5 426.21 545.05
Stock Adjustments 135.68 322.96 32.46 630.30 -447.54
Total Income 10,137.21 12,913.01 14,581.16 16,042.32 18,664.96
Expenditure
Raw Materials 4,265.72 5,807.48 6,307.79 6,864.96 7,140.69
Power & Fuel Cost 245.17 253 309.9 394.12 387.34
Employee Cost 541.4 630.15 745 903.37 1,014.87
Other Manufacturing
Expenses 50.08 65.32 73.52 402.88 413.79
Selling and Admin
Expenses 1,042.51 1,299.17 1,609.33 1,684.41 2,093.87
Miscellaneous Expenses 416.54 601.28 682.72 516.9 1,008.91
Preoperative Exp
Capitalised -15.78 -42.52 -112.75 -72.55 -71.88
Total Expenses 6,545.64 8,613.88 9,615.51 10,694.09 11,987.59
Mar '06 Mar '07 Mar '08 Mar '09 Mar '10

16
 ITC Ltd: Financial ratios and DuPont analysis

12 mths 12 mths 12 mths 12 mths 12 mths

Operating Profit 3,388.37 4,022.91 4,449.15 4,922.02 6,132.32

PBDIT 3,591.57 4,299.13 4,965.65 5,348.23 6,677.37
Interest 21.10 16.04 24.61 47.65 90.28
PBDT 3,570.47 4,283.09 4,941.04 5,300.58 6,587.09
Depreciation 332.34 362.92 438.46 549.41 608.71
Other Written Off 0.00 0.00 0.00 0.00 0.00
Profit Before Tax 3,238.13 3,920.17 4,502.58 4,751.17 5,978.38
Extra-ordinary items 46.13 61.94 117.41 81.52 48.65
PBT (Post Extra-ord Items) 3,284.26 3,982.11 4,619.99 4,832.69 6,027.03
Tax 1,027.57 1,263.07 1,480.97 1,565.13 1,965.43
Reported Net Profit 2,235.35 2,699.97 3,120.10 3,263.59 4,061.00
Total Value Addition 2,279.92 2,806.40 3,307.72 3,829.13 4,846.90
Preference Dividend 0.00 0.00 0.00 0.00 0.00
Equity Dividend 995.12 1,166.29 1,319.01 1,396.53 3,818.18
Corporate Dividend Tax 139.58 198.21 224.17 237.34 634.15
Per share data (annualised)
Shares in issue (lakhs) 37,551.79 37,622.23 37,686.10 37,744.00 38,181.77
Earning Per Share (Rs) 5.95 7.18 8.28 8.65 10.64
Equity Dividend (%) 265 310 350 370 1,000.00
Book Value (Rs) 23.97 27.59 31.85 36.24 36.69

Cash Flow Statement:

ITC

17
 ITC Ltd: Financial ratios and DuPont analysis

Cash Flow
Mar '06 Mar '07 Mar '08 Mar '09 Mar '10

12 12 12 12
mths mths mths mths 12 mths

3269.1 4571.7 4825.7

Net Profit Before Tax 9 3926.7 7 4 6015.31
1929.6 2141.1 2722.9 3279.0
Net Cash From Operating Activities 8 9 6 3 4630.65
- - -
1082.7 1736.7 1260.7 -
Net Cash (used in)/from -175.31 8 8 4 3531.56
Investing Activities
- - -
Net Cash (used in)/from Financing 1014.0 1316.0 1556.1 -
Activities -954.21 7 9 5 1009.86
Net (decrease)/increase In Cash and
Cash Equivalents 800.16 44.34 -329.91 462.14 89.23
Opening Cash & Cash Equivalents 55.66 855.82 900.16 570.25 993.7
1032.3
Closing Cash & Cash Equivalents 855.82 900.16 570.25 9 1082.93

Analysis
As the sales are increasing gradually year on year basis, the operational activities are increasing.
The company has came across huge turnover and profits in the year 2009-10 after the heavy the
downfall in the market. In recession period, the company’s operational margins and sales grew
up by almost 15%. As per the balance sheet company paid off its debt part in the in the year 2009
which is a clear sign of reduction in financing activities. In the year 2009 company investment
110% more than the pervious year which shows that there is an increment in cash-flows from
investing activites. In the year 2007-08, company lent huge amount in loans and advances which
increased the investing activities and brought down the cash balance.

18
 ITC Ltd: Financial ratios and DuPont analysis

Liquidity And Solvency

Quick Ratio
Quick Ratio = (Current assets – stock) / liabilities

2005-06 2006-07 2007-08 2008-09 2009-2010

Quick Ratio 0.365 0.391 0.415 0.459 0.301

QUICK RATIO
0.5
0.45
0.4
0.35
0.3
QUICK RATIO
0.25
0.2
0.15
0.1
0.05
0
2005-06 2006-07 2007-08 2008-09 2009-10

The quick ratio indicates the short-term liquidity position of a company. The data shows that
company holds a good amount of stock in its balance-sheet and there is no role of stock in the
steep fall of quick ratio in the year 2009-10. Current ratio shows the impact of stock in the
current assets over the current liabilities.

19
 ITC Ltd: Financial ratios and DuPont analysis

Current Ratio

Current Ratio = Current Assets / Current Liabilities

2005-06 2006-07 2007-08 2008-09 2009-2010

Current Ratio 1.320 1.448 1.476 1.618 0.984

CURRENT RATIO
1.8

1.6

1.4

1.2

1 CURRENT RATIO

0.8

0.6

0.4

0.2

0
2005-06 2006-07 2007-08 2008-09 2009-10

The information shows that company’s current liabilities are increasing over its current assets in the year
2009-10. Before the year 2009-10, company’s current assets gradually increased over its current

20
 ITC Ltd: Financial ratios and DuPont analysis

liabilities in the last four years , which is a good sign for making investments in the stock. In the year
2009-10 the current assets didn’t increased in the same proportion as current liabilities increased.

Debt to Equity Ratio

Debt to Equity Ratio : Total Debt / Total Equity Employed

2005-06 2006-07 2007-08 2008-09 2009-2010

Debt to 0.01 0.02 0.02 0.01 0.01
Equity

DEBT TO EQUITY
0.03

0.02

0.02
DEBT TO EQUITY

0.01

0.01

0
0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5

It can be clearly seen from the financing activities that the company started paying off its debt
from the last year which has again brought down its debt to equity ratio to around 1%. This
shows that the company is less risky to invest in as more funding is done through internal
sources.

21
 ITC Ltd: Financial ratios and DuPont analysis

Shareholders / Investors

Earnings per share

Earnings per share – profit after tax / number of shares

2005-06 2006-07 2007-08 2008-09 2009-2010

EPS 5.95 7.18 8.28 8.65 10.64

EPS
12

10

8
EPS
6

0
0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5

As the profits are increasing the EPS of the company is also increasing despite the fact that the
number of shares outstanding is also increasing.

22
 ITC Ltd: Financial ratios and DuPont analysis

Dividend Payout Ratio

Dividend payout ratio – DPS / EPS * 100

2005-06 2006-07 2007-08 2008-09 2009-2010

Dividend
Payout 50.76 50.53 49.45 50.06 109.63
In %age

Dividend Payout Ratio (%)

120

100

80
Dividend Payout Ratio (%)
60

40

20

0
0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5

As the economies cooled down after a big meltdown company started distributing huge
dividends so as to attract the investors to invest in. As the company created huge reserves in the
previous two years, so they aimed to distribute more and more dividends in the year 2009-10.

23
 ITC Ltd: Financial ratios and DuPont analysis

Profitability

Gross Profit Margin

Gross Profit Margin = Gross profit / turnover x 100

2005-06 2006-07 2007-08 2008-09 2009-2010

GP Margin 35.98 34.05 28.44 29.17 29.74

In %age

Gross Profit Margin

40

35

30

25
Gross Profit Margin
20

15

10

0
0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5

As the recession stuck the markets in the year 2007, companies started to realize heavy
operational expenses which brought down their operational profits gross profit margins.

24
 ITC Ltd: Financial ratios and DuPont analysis

Companies like Reliance Industries Ltd., Hindustan Unliver Ltd. faced 60 to 70% of their
operational margins. So, here we can see that suddenly in the year 2007 there was a downfall in
the gross profit margin but the company has started to overcome it.

Net Profit Margin Ratio

Net Profit Margin = Net Profit / Turnover x 100

2005-06 2006-07 2007-08 2008-09 2009-2010

NP Margin 22.19 21.4 21.5 21.18 21.3

In %age

Net Profit Margin

22.4

22.2

22

21.8

21.6 Net Profit Margin

21.4

21.2

21

20.8

20.6
0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5

There was a downfall in profit margin in 2006 because of amendments in the tobacco norms by
Indian Government. Net profits also reflect the same picture as of gross profits in the later years.

25
 ITC Ltd: Financial ratios and DuPont analysis

Return on Capital Employed

Return on Capital Employed (ROCE) = Profit / capital employed x 100

2005-06 2006-07 2007-08 2008-09 2009-2010

ROCE 36.26 37.24 36.60 34.60 42.64

In %age

RETURNS ON CAPITAL EMPLOYED

45

40

35

30
RETURNS ON CAPITAL
25 EMPLOYED
20

15

10

0
0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5

The purpose is to measure the overall profitability from the total funds made available by the owner &
lenders. The effect of gross profit and net profit can be seen clearly. For the year 2007 and 2008
company is making less profits as compared to the later year.

26
 ITC Ltd: Financial ratios and DuPont analysis

Financial (Management Efficiency)

Debtors Turnover Ratio

Debtors Turnover Ratio = Net Credit Sales / Average Trade Debtors

2005-06 2006-07 2007-08 2008-09 2009-2010

Debtors
Turnover 18.22 20.79 20.43 21.32 24.31
In %age

DEBTORS TURNOVER RATIO

30

25

20
DEBTORS TURNOVER RATIO
15

10

0
0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5

It shows how quickly debtors are converted into cash. A higher Ratio is better since it would
indicate that debts are being collected more quickly. A ratio lower than the standard would
indicate the inefficiency. The picture is quite positive over here.

27
 ITC Ltd: Financial ratios and DuPont analysis

Fixed Asset Turnover

Fixed Asset Turnover = Sales turnover / Fixed assets employed

2005-06 2006-07 2007-08 2008-09 2009-2010

Fixed Asset
Turnover 2.31 2.42 1.59 1.44 1.58
In %age

FIXED ASSET TURNOVER RATIO

3

2.5

2
FIXED ASSET TURNOVER RATIO
1.5

0.5

0
0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5

The company is investing more and more in the fixed assets but is not able to generate or
increase sales in that proportion. As we have seen through the investment activities that company
has increased its fixed assets but has not increased the sales turnover in that ratio.

28
 ITC Ltd: Financial ratios and DuPont analysis

Stock turnover

Stock turnover = Cost of goods sold / stock expressed as times per year

2005-06 2006-07 2007-08 2008-09 2009-2010

Stock
Turnover 3.82 3.76 5.51 5.26 6.04

STOCK TURNOVER RATIO

7

4 STOCK TURNOVER RATIO

0
0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5

Stock turnover ratio tells how many times a company can use its stock to generate sales, how the
stocks are been turned into sales.

Here we can see that the stock turnover ratio was still increasing in the recession period which is
a good sign for a company and that too it was converted into sales.

29
 ITC Ltd: Financial ratios and DuPont analysis

DuPont Analysis

Particulars 2005-06 2006-07 2007-08 2008-09 2009-10

Total Equity 375.52 376.22 376.86 377.44 381.82

Assets 9,181.21 10,637.96 12,272.10 13,912.63 14,172.09

PBIT 3,259.23 3,936.21 4,527.19 4,798.82 6,068.66

PBT 3238.13 3920.17 4502.58 4751.17 5978.38

Net Profit 2235.35 2699.97 3120.1 3263.59 4061

Sales 16236.42 19519.99 21467.38 23247.84 26399.63

PBIT/Sales 0.20073575 0.20165021 0.21088694 0.20642004 0.22987671

PBT/PBIT 0.99352608 0.99592501 0.99456396 0.99007048 0.98512357

NP/PBT 0.69032127 0.68873799 0.69295826 0.68690238 0.67928101

NP/Sales 0.13767505 0.13831821 0.14534144 0.1403825 0.15382791

ROA
(NP/Assets) 0.24347009 0.25380524 0.25424337 0.2345775 0.28654913

Assets/Equity 24.4493236 28.2759024 32.5640822 36.8605076 37.1172018

ROE
(NP/Equity) 5.95267895 7.17657222 8.27920183 8.64664582 10.6359017

30
 ITC Ltd: Financial ratios and DuPont analysis

0.35

0.30

0.25

0.20
NP/Sales
ROA (NP/Assets)
0.15

0.10

0.05

0.00
0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5

We can see that the net profits are increasing more than the proportion of total assets and that’s
the reason why ROA is increasing. ROE of the company shows that company is not increasing
its internal funds to the proportion of profits. Company is strategizing to create more and more
funds to carry on the short term and long term operations whereas not raising the funds from
market or financial institutions. The Company is more over concerned to pay off its debt burden.

Resources
 CMIE – Prowess
 Religare Technova
 Companies Official Website – www.itc.co.in
 A.R.Ansari, Managerial economics& financial analysis, Tata McGraw-Hill, 2008.

31
ITC Ltd: Financial ratios and DuPont analysis

32