ITC Limited (Indian Tobacco Company). Here we will read about the company’s History, its overview, Fundamental analysis, Future plans, share price, Buyback and Dividend. We will also go through some the highlights of ITC’s first ever Investors meet. Future of ITCs cigarette business and ITC’s plans on Demerger of FMCG and InfoTech business.
ITC (Indian Tobacco Company) it was originally known as Imperial Tobacco Company Incorporated on 24th August 1910. They setup their 1st cigarette factory in Bangalore in 1913. It’s a century old company.
ITC is one of India’s foremost private sector companies with a Gross Sales Value of ₹ 74,979 crores and Net Profit of ₹ 13,032 crores (as on 31.03.2021). It’s a company which started with cigarettes as its primary business. And today it has diversified in to many sectors.
1) FMCG Cigarettes
2) FMCG others
4) Paperboards & Specialty papers
6) Agri Business
7) Information Technology.
Cigarettes in India
ITC’s Cigarettes Business is major contributor in its revenue a big part of its revenue is from cigarettes alone. May be this is the reason why market is looking at ITC as undervalued company. there is uncertainty in future of cigarettes.
Nearly 267 million adults (15 years and above) in India (29% of all adults) are users of tobacco. According to the Global Adult Tobacco Survey India. Smokeless tobacco is commonly consumed in India. In forms of Khaini, Gutkha, Zarda etc. And smoking forms of tobacco used are Bidi, Cigarette and Hookah.
ITCs FMCG Cigarettes
ITC’s wide range of Cigarette brands which includes Insignia, India Kings, Classic, Gold Flake, American Club, Wills Navy Cut, Players, Scissors, Capstan, Berkeley, Bristol, Flake, Silk Cut, Duke & Royal. In its Tobacco business only 8% of revenue is generated from Cigarettes and rest 92% is from its non-cigarette businesses. The tax levied upon cigarette companies is huge. And it has grown at 15% CAGR year on year in past few years. Recent studies showed that Illegal cigarettes are capturing its market. to which companies like ITC are showing reduction in profits.
Analysis says that cigarette or tobacco consumption is declining in India. In the case of legal tobacco. On other hand illegal tobacco and cigarette consumption is has seen a sharp rise.
What are illegal cigarettes? These are the imported cigarettes which do not comply with Indian safety standard. As per Indian standards, it is mandatory to have statutory warnings on cigarette packets. Smuggled cigarettes (imported without paying custom duty) do not have statutory warnings on them. Some people think those cigarettes are less injurious. Which is not true. Why we are talking about illegal cigarettes here..? Cause these cigarettes cove large portion of market cutting down the revenue of companies like ITC.
ITC’s FMCG others
Some of ITC’s FMCG brands that have gained significant market standing among consumers. They are Aashirvaad, Sunfeast, Bingo!, YiPPee!, Candyman, mint-o in the Branded Packaged Foods space. Essenza Di Wills, Fiama, Vivel and Superia in the Personal Care Products segment. Classmate and Paperkraft in Education & Stationery products. Mangaldeep in Agarbattis senment. And Aim in Matches.
ITC Hotels is one of India’s largest hotel chain with over 110 hotels. It is a part of the ITC Limited group of companies. Their Hotels are regularly voted for the best employers in Asia in the hospitality sector.
ITC is leader in Agricultural business with 3 million tonnes of commodities. Their Agriculture business is divided in to Agri commodities and rural services, e-choupal, Agri business limited, ITC analytical services and Information technology. These businesses help ITC in Procurement, Educating farmers for producing best crops, for Food safety testing, rapid solutions, farm level services, research and development etc.
ITCs Agri business help the company in procurement of raw materials for most of their value added products. Their raw material dependency is very less. Through its e-choupal platform it has revolutionised the conventional rural agriculture. And it is one of the most farmer friendly platforms in India. Through this ITC has made farmers smart by continuously educated them for advanced farming. They have provided internet connections to many villages in India.
ITC Infotech is a leading global technology services and solutions provider, led by Business and Technology Consulting. It provides business-friendly solutions to help clients succeed and be future-ready. By bringing together digital expertise and strong industry speciﬁc alliances.
The company provides technology solutions and services to enterprises and industries. Like Banking & Financial Services, Healthcare, Manufacturing, Consumer Goods, Travel, Hospitality etc. With a combination of traditional and newer business models, for a long-term sustainable partner.
ITC Investors Meet 2021
ITC’s 1st Ever Investors meeting took place on 14th December 2021. This was a virtual meeting. The Meeting started with “ITC Next Strategy” presentation by Chairman Mr. Sanjiv Puri. Speaking to the investors he said, ITC is working on becoming a dynamic future tech enterprise. By bringing up transformation across entire value chain, marketing, operations, supply chain. Using business model like Digi Next, 6th Sense, customer data hub, industry 4.0 etc.
They are working upon Cost management in every segment. By removing, reducing and reengineering the existing processes. They are planning for D2C businesses. In this regard the company has recently acquired personal care range called Mother sparsh a D2C ayurvedic and natural personal care band.
Chairman on FMCG cigarettes said, “they are working on increasing the potential of cigarettes in their tobacco business”. As Cigarettes contributes only 8% of its tobacco basket, and even a small shift in % can increase their profitability.
FMCG others includes 4 major sub divisions namely
1. Branded Package foods
2. Personal care
3. Education and Sanitary
4. Matches and Agarbatti
Branded Package Food
In Branded Package food segment ITC is working on increasing its reach to its consumers. Chairman said they are working on to fortifying their core existing large brands like Ashirwad, sunfeast, Bingo, Mangal Deep (agarbatti).
Ahirwad has stood up in itself as a product. Now spices and breakfast mixes are being developed under this brand. In breakfast mixes poha and ready to eat chapati are already been introduces. ITCs yuppi noodle has proven to be the fastest growing instant noodle brand. They are coming with more breakfast mixes with regional focus and ITC’s Master Chef. ITCs Fruit Beverage B-natural is growing at faster phase.
Personal care and sanitary
ITC is working on betterment of Nymile (Herbal Floor cleanser) which is amongst its few consumer liked products. ITC’s brand Savlon has developed many new products with immerging trends. Over all ITC is Aiming to invest in new vectors for business.
In Education ITC’s Brand Classmate is moving towards interactive innovations which is an adjacent space with classmate. ITCs educational sector has seen down fall in past 2 years. It is likely to grow with normalization of schools and colleges.
Agarbatti and Matches
Under This segment there are 3 products namely AIM Matches, Home seafty matches and Mangaldeep Agarbatti. To bring innovation in this sector Mangaldee is coming up with deviational songs series and even adding new fragrances to its existing portfolio.
Agri Business. ITC is leader in Agricultural business with 3million tonnes of commodities, in 20 crops spread across 22 cities. e-choupal is largest rural infrastructure with 4 million farmers. They are 5th largest buyer of tobacco in world and India’s 40% of tobacco is brought by ITC. And now are developing climate smart agriculture practices for spices, aromatic plants, fruits and vegetables.
ITC produces Paperboards and Specialty Papers Division is amongst the leading names in the business worldwide. They have brought up Innovative solutions to meet the needs of industry. Largest manufacturers of Packaging and Graphic Boards in South Asia. One development being made here is extracting paper pulp from hardened wood which is very innovative and this step will lead ITC to increase its capacity increasing profits for company.
Covid-19 has impacted ITC’s Hoteling industry . They have 110 properties over 75 locations and are India’s 2nd largest Hoteling Company. In year 2020 ITC faced losses in their hoteling sector. In the year 2021 hoteling industry has seen 40% of its pre covid occupancy levels.
With normalization this trend tends to continue. Occupancy levels are expected to be at pre covid levels in 2022. In Future the work from home culture may work as blessing in disguise. As people may tend to plan for longer vacation with ease of remote working capabilities. To find out more about how work from home culture will affect the future of world click on “The Changing World”.
ITC’s hoteling industry is working on asset right strategy (a holistic approach of re-evaluating what’s core and noncore) from 2017 itself. This will definitely be helpful for sustained long term value creation.
Future of ITCs Hoteling industry
The company is looking forward for innovative ways to generate businesses. In pandemic they started with their take away Cuisine services. ITC is working on providing their customers with best in class experiences. They have developed lab with sleeping pods at their R&D center to understand and provide best sleeping experience to its consumers. And are conducting research on Menu, Beds, Ambiance, aroma that will make the experience world class. In future ITC is Aiming to make this Sleep Menu Digitally available. This will bring more profitability to the company in future.
Many market experts are waiting for this thing (Demerger and value unlocking) to happen from long term. Why investors want ITC to demerge its FMCG and other businesses..? In pandemic we have seen ITCs hoteling industry has hit hard and showed losses where as other sectors like FMCG performed very well. Showing net losses in quarterly revenues. Experts and few investors feel that demerger of company will lead company to focus on individual growths. At this moment company is doing diversified things which are working single roof. And Demerger will lead in value unlocking of FMCG and other sectors.
Demerger of ITC infotech
ITC infotech is ITCs fully owned subsidiaries. Separate listing of infotech business is possible. The company may consider listing it separately in interest of all stake holders.
Demerger of ITCs FMCG Business
Upon Asking what are plans on Demerger of FMCG business to unlock value..?
Management said the strategy for FMCG is always been to leverage institutional strengths. this has led the cost of building FMCG business has been very low. Company is evaluating time to time on its demerger and value unlocking. In-addition to this the chairman said, “Nothing is cast in stone’’. “But the industry needs to stabilize first”. “ITC will continue looking at it and will do what’s right for the business and its stake holders ”. This tells us that company may consider to do value unlocking by demerger of FMCG in future.
Dividend and Buy back
ITC continues to pay regular dividend like it is been doing from past. They paid dividends even after making losses in year 2020 and 2021. The Company will continue provide regular dividend. This decision is taken upon investor’s inputs that it is fine to have regular dividend pay-out.
ITC Share Performance
In March 2020 ITC share fell from 236/- to 135/- per equity share. As Lockdown was declared. It failed show a recovery from its lows. ITC share has grown by a very small % in past 2 years. Currently trading at 222/- per equity share as on Friday 15-01-2022. This share has shown very long consolidation. The company has shown underperformance in Hoteling. Where as some segments of FMCG and cigarettes have shown very good recovery.
ITCs share is consistently under performing as we have discussed on top. There is uncertainty in some of ITCs businesses. In shorter term like hotels. and uncertainty of some businesses like cigarettes in longer term. Investors are finding better options for short term investments.
This is just an over view of company. Investments in stocks are subjected to market risks. You should carefully consider your financial situation. And consult your financial advisor