ITC Limited Stock Analysis – An Enterprise of Tomorrow

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ITC Limited is an Indian multinational conglomerate company headquartered in Kolkata.

It was established in 1910. ITC is one of India’s foremost private sector companies and a diversified conglomerate with businesses spanning fast-moving consumer goods, hotels, paperboards and packaging, agri business and information technology.

ITC is the country’s leading FMCG marketer, the clear market leader in the Indian paperboard and packaging industry, globally acknowledged pioneer in farmer empowerment through its wide agri business, a pre-eminent hotel chain in India that is trailblazer in responsible luxury, and in information technology its wholly own subsidiary, ITC Infotech is a specialized global digital solutions provider.

ITC’s new consumer goods businesses have established a vibrant portfolio of 25 world-class Indian brands that create and retain value in India.

ITC’s world-class FMCG brands include Aashirvaad, Sunfeast, Yippee, Bingo, B natural, ITC master chef, Fabelle, Sunbean, Fiama, Engage, Vivel, Savlon, Classmate, Paperkraft, Mangaldeep, Aim and others have garnered encouraging consumer franchise within a short span of time.

While several of these brands are market leaders in their segment, others are making appreciable progress.

ITC and its group companies employ over 35,500 people directly. Its sustainable development models and value chains have supported the creation of 6 million sustainable livelihoods.

 

FMCG BUSINESS:

With more than one hundred years of expertise in developing products to match the evolving taste of the consumers, ITC’s cigarette business continues to be relentless in its pursuit of strengthening its leadership position in every segment of the market in India.

ITC’s wide range of products includes Insignia, India Kings, Classic, Gold Flake, American Club, Navy Cut, Players, Scissors, Capstan, Berkeley, Bristol, Flake, Silk Cut, Duke and Royal.

ITC’s cigarettes are manufactured in state-of-the-art factories at Bengaluru, Munger, Saharanpur, Kolkata and Pune.

In overseas markets, ITC’S cigarette business continues to maintain high standards of international quality and competitiveness.

West Asia is a key export region for ITC and ITC provides wide portfolio of high quality cigarettes in this region.

With a portfolio of brands under the classic, wills and scissors umbrella, ITC has cemented its international standing being the 3rd largest player in the countries of Bahrain & Qatar.

ITC was also the first company to introduce a flavor on demand product in the economy segment in the West Asia Region. The world soaked in leisure has its Armenteros, from the house of ITC.

Launched in the Indian market in 2010, it is the most savored cigars in the country today. Cigarette industry in India:

Legal cigarettes account for less than 1/10th of tobacco consumed in India due to punitive and discriminatory taxation and regulatory regime. India is the 4th largest market for illegal cigarettes in the world causing a loss of over Rs 13,000 crore. 42% of adult Indian males consume tobacco.

Only 7% of adult Indian males smoke Cigarettes as compared to 14% who smoke bidis and 30% who use tobacco.

Annual per capita adult cigarette consumption in India is approx one-ninth of world average.

While the legitimate cigarette industry has declined steadily since 2010-11 at a compound annual rate of over 4% p.a, illegal cigarette volumes in contrast have grown at nearly 5% p.a during the same periods making India one of the fastest growing illegal cigarette markets in the world.

This is also borne by the fact that there has been a quantum jump in the number of seizures of smuggled cigarette consignments by enforcement agencies across the country over the last few years.

Legal cigarettes contribute more than 4/5th of tax revenue, despite constituting less than 1/10th of tobacco consumption.

Products

Consumption Share

Tax Revenue Share

Other Tobacco Products

9/10th

1/5th

Legal Cigarettes

1/10th

4/5th

Per capita cigarette consumption: 11% of world average

The number of cigarettes per capita per annum:

Countries

Number Of Cigarettes

China

2043

Japan

1583

USA

1017

UK

828

UAE

748

Pakistan

363

India

89

Although India accounts for over 17% of world population, its share of world cigarette consumption is less than 2%. This shows there is a tremendous growth opportunity.

Cigarettes represent more than 90% of the value in the traditional tobacco product market. In the market for cigarettes, volume is expected to amount to 91,715.86 pieces by 2023.

The average volume per person in the market for cigarettes amounts to 65.9 pieces in 2020.

The average price per unit in the market for cigarettes amounts to US$ 0.1 IN 2020. Revenue in the cigarettes segment amounts to US$ 13,547 million in 2020. The market is expected to grow annually by CAGR of 5% between 2020-2023. In India tobacco is harvested in two forms: cigarette tobacco and non-cigarette tobacco.

During 2018-19 non-cigarette tobacco alone had a 69% market share. Based on consumption, khaini constituted 11% and bidi and cigarette had a market share of 8%.

Among the major cigarette producers in India, ITC currently enjoys the highest market share that is 84.27% based on sales. Over the years, tobacco has become an essential part of the Indian society cultural environment, especially in the Eastern, Northern and North Eastern parts of country.

A relatively higher income growth compensates for the increasing price of cigarettes, leading to greater consumption. The global market for cigarettes alone is roughly 1.1 billion consumers spending US$ 800 billion annually.

The global tobacco market size reached a volume of 8.2 million tonnes in 2018, registering a CAGR of around 1.5% during 2011-2018. The market is further projected to reach a volume of around 9.1 million tonnes by 2024.

The demand for tobacco has recently witnessed a shift from the developed regions to the developing nations such as Asia and Africa.

The market has been segregated into cigarettes, cigars and cigarillos. Currently cigarettes represent the most popular type, accounting for the majority of the global market.

FMCG sector is the 4th largest sector in the Indian economy with household and personal care accounting for 50% of FMCG sales in India. Growing awareness, easier access and changing lifestyles have been the key growth drivers for the sector.

The urban segment accounts for a revenue share of around 55% is the largest contributor to the overall revenue generated by the FMCG sector in India.

However, in the last few years, the FMCG market has grown at a faster pace in rural India compared with urban India.

Semi-urban and rural segments are growing at a rapid pace and FMCG products account for 50% to total rural spending. ITC’s products reach 124 million households in India.

ITC rapid scale-up of FMCG businesses:

Year

Amount (Rs Crore)

2006-07

1,704

2007-08

2,511

2008-09

3,014

2009-10

3,642

2010-11

4,482

2011-12

5,545

2012-13

7,012

2013-14

8,122

2014-15

9,038

2015-16

9,731

2016-17

10,512

2017-18

11,329

2018-19

12,505

ITC’s annual consumer spends of over Rs 18,000 crore

Brands

Amount (Rs Crore)

Aashirvaad

>4,500

Sunfeast

>3,800

Bingo

>2,500

Classmate

>1,400

Yippee

>1,100

Vivel, Mangaldeep, Candyman

>500

ITC brand leadership: Aashirvaad is number one in branded atta, Sunfeast is number one in cream biscuits, bingo is number one in bridges segment of snacks foods.

Classmate is number one in notebooks, yippee is number two in noodles, engage is number two in deodorants, Fiama is number two in body wash, Mangaldeep is number one in dhoop segment and number two in agarbattis.

ITC has sustained its position as one of the fastest growing FMCG businesses in the country, leveraging a robust portfolio of brands, a slew of first to market offers, a range of distinctive, customized products, innovation, premiumization, along with an efficient supply chain and expanding distribution network.

ITC launched over 50 new FMCG products, across categories such as foods, personal care, education and stationery products, agarbattis and matches, strengthening its diverse and differentiated portfolio of FMCG offerings.

ITC’s commitment to create value for India is also manifest in its investments in the development of world class manufacturing and hospitality assets that contribute to the company’s competitiveness, whilst enhancing the country’s long term intellectual property.

An investment outlay of Rs 25,000 crore has been envisaged to support creation of several integrated consumer goods manufacturing and logistics facilities for its FMCG businesses.

Manufacturing and logistics new launches includes Mysuru, Karnataka, Ambernath Maharashtra, Panchla West Bengal, Kamrup Assam, Kapurthala Punjab, Pudukkottai Tamil Nadu, Medak Telengana, Sriperumbudur warehouse Tamil Nadu.

The agarbatti industry continues to import raw battis and bamboo sticks, although bamboo and charcoal, the principal raw materials are available in India in plenty.

This is resulting in loss of livelihood creation opportunity for women and tribals in rural areas, particularly in the Noth east.

In this regard, ITC is indigenizing raw batti sourcing, by enhancing domestic manufacturing capacity through technology up-gradation and standardization of process.

ITC has also started work on augmenting bamboo plantation in the North East region and indigenization of bamboo stick production which will encourage the manufacture of raw battis from domestic bamboo and facilitate the creation of sustainable livelihood opportunities amongst the small and marginal farmers.

ITC has also partnered with various state government bodies to raw produce battis and branded finished goods.

India’s FMCG sector grew at 6.3% in the three months to March 2020, registering lowest first quarter growth in the past three years.

The segment grew at 7% in the October December quarter of 2019. Industry clocked a decent growth of 7.5% in January and February 2020 but growth slid to 4% in March due to the onset of COVID-19. FMCG sector is expected to grow anywhere in the range of 5%-6% during the July- December period.

Purchase of daily house hold essentials and groceries in cities rose significantly in the weeks when lockdown and its extension were announced, indicating panic buying in short spells.

Sales of FMCG grew 79% during the fourth week of March when the government first ordered a nationwide lockdown for 21 days.

While a following week saw a sharp decline at 47%, the market saw purchase soar again by 239% during third week of April.

Online shopping of FMCG products became more popular during different phases of India’s lockdown.

Around 41% of people aged 35-54 had increased online shopping vis-à-vis 80% aged 18-34 are those who were previously averse to buying goods online.

The COVID-19 pandemic, which locked the whole world, has come as an opportunity of growth and consolidation for the online grocery delivery segment.

With supermarkets and kirana stores struggling to deliver, the online grocery segment is set for phenomenal growth.

India’s online grocery market could make US$ 3 billion sales this year, representing whopping 76% hike compared to US$1.7 billion last year.

Consumer outlook on health and safety in a post-pandemic scenario:

77%

Of consumers will be more cautious about cleanliness, health and safety

62%

Of consumers will switch to brands that show higher levels of product safety

54%

Of consumers will prefer local or regional products

Most of the Indian consumer’s appetite for online shopping will increase from 46% in the current scenario to 64% over next 6-9 months.

The grocery and food supplies will gain the most number of customers. This will be highly benefited to ITC since it is leading company in FMCG sector.

More than 90% of fresh vegetables or meat in India is currently sold through wet markets where hygiene is a big issue.

So, a shift to organized players from unorganized market is likely to fuel moving forward. In this segment, ITC has launched its brand farmland to sell vegetables.

Total consumption spends in India would rise three-fold to Rs 4 lakh crore by 2027. Key factors for growth of consumption in India by 2030:

1) Rising incomes and the expansion of the middle class and high-income segment will reshape future consumption:

Middle-income and high-income households will drive nearly $4 trillion of incremental consumption spend by 2030.

Overall, there will be nearly $2 trillion of incremental spend on affordable, mid-priced offerings, in parallel with $2 trillion incremental spend led by consumer upgrading to premium offerings or adding new categories of consumption.

Households moving up an income level will spend two to two-and-a-half times more on essential categories such as food, housing, transport and communication and also on apparel and personal care.

By 2030, 80% of incremental spend will be led by middle-income consumers.

2) India will drive consumption growth and the urban-rural divide will diminish significantly:

While India’s top 40 cities will form a $1.5 trillion opportunity by 2030, many thousands of small urban towns will also drive an equally large spend in aggregate.

In parallel, there will be an opportunity to unlock nearly $1.2 trillion of spend in developed rural areas by improving infrastructure and providing access to organized and online retail.

With nearly 240 million consumers in 2030, developed rural towns will represent a large but dispersed $1.2 trillion consumption opportunity (~20% of total).

3) Liberalization’s children – India’s millennials and Generation Z will become a major consumption pool and spend more than their predecessors:

Millennials and Generation Z will form 77% of India’s population by 2030.

They will be more willing to spend, be more brand-aware and informed than India’s previous generation of consumers. Mass marketing to this generation will be less effective, as they seek more genuine feedback from family and influencers.

The India of 2030 will have 90 million new millennial led households and nearly 370 million14 Generation Z consumers (10-25 years old) shaping the future of consumption.

4) Indian peculiarities will shape future opportunities for indigenous offerings, e-commerce and value-for-money brands:

Future consumption patterns will be shaped by uniquely Indian characteristics such as the preference for very “Indian” offerings in food, beverages and personal care, adoption of e-commerce in a dispersed market and a shift towards private labels led by the intrinsically value-conscious Indian consumer.

Food and beverages will translate into Indian and local cuisines and snacks retaining mainstay position, even as consumers experiment with global tastes.

Personal care will witness widening appeal of Ayurveda based and herbal products that are considered best in class by an equal share of consumers in both the middle-income as well as the high-income segment.

5) Many consumer archetypes will persist as age, education, occupation and connectedness begin to strongly influence preferences within each income segment:

In 2030, India will continue to have very distinct consumer archetypes, with the more digitally connected consumers within each income segment creating significant consumption and business opportunities.

India’s future consumer behavior can be explained by seven key consumer archetypes (below), that businesses must keep in mind while evaluating growth opportunities in India over the next decade.

Consumer

Archetype

Average

Annual household

Income ($)

Average Age (Years)

Highest level of Education and current occupation

Access to Smart phones

Share of Population

2018 to 2030

Poor Rural

2,800

43

>70% below grade 10. 70% informally/non

employed

5%

29% to9%

Poor Dreamers

5,200

41

>70% below grade 10. 70%informally

Non employed

10%

14%to11%

Young And Savvy

5,200

21 (all born post-1990)

50% till grade 10. 20% bachelors/ masters. 25% employed, 40% students

65%

11%to15%

Middle India

6,800

47%

>70% below grade 10. 70% informally non employed

10%

19% to21%

Connected

Aspirants

6,800

39%

45% till gade 10. 25% bachelors/

Masters.60% employed

95%

15% to19%

Conserva-tive rich

40,000

49

65% below grade 10. 30% passed grade 10

95%

15% to19%

Sophisticate-d Rich

40,000

35(35% born post 1990)

40% till grade 10. 45% bachelors. 55% employed

95%

7% to17 %

6) Connected India, with 1 billion-plus internet users, will have significantly more informed consumers who will demand greater transparency from brands:

India’s consumers will be more informed about consumption options than ever before.

Connected consumers, mostly accessing the internet through mobiles, will give instant feedback at scale, demand transparency and tilt the balance of power from brands to consumers.

EDUCATION & STATIONERY:

ITC made entry to the education and stationery business with its Paperkraft brand in the premium segment in 2002 and later expanded into popular segment with its classmate brand in 2003.

ITC is a manufacturer of India’s first ozone treated environment-friendly elemental chlorine free pulp, paper and paperboard.

ITC blends its knowledge of image processing, printing and conversion garnered from packaging and printing business with its brand building and trade marketing & distribution strength residence in its FMCG business to offer superior value products to consumer.

Classmate over years has transformed itself from being a notebook brand to provider of the complete stationery portfolio with the product range including high quality writing instruments ( ball, gel & roller pens & mechanical pencils), mathematical instruments (geometry boxes), scholastic products ( erasers, sharpeners and rulers) and art stationery products ( wax crayons, plastic crayons, sketch pens and oil pastels).

ITC’s paperkraft brand provides all types of signature notebooks and notepads.

 

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PAPERBOARDS, SPECIALITY PAPER & PACKAGING BUSINESS:

ITC’s paperboards and specialty paper business is the leader in volume, product range, market reach and environmental performance, and is the clear market leader in the value added paperboards segment.

ITC’s paper segment serves a large section of industry requirement from cigarette papers and components to FMCG cartons, from electrical insulation papers to bio-based barrier coated board, from decorative laminate base to writing and printing papers and much more.

ITC straddles the entire spectrum of paperboards from 100% virgin, food grade boards which are made from renewable and sustainable source to 100% recycled boards.

ITC PSPD is also the first paper business in the country to be invited to be a member of the global forest & trade network (GNFTN) of the world wide fund for nature.

Committed to developing a sustainable raw material base, ITC’s pulpwood is being progressively sourced from renewable plantation under its social and farm forestry programmes.

ITC’s packaging & printing business is the largest value-added converter of paperboard packaging in South Asia.

It converts over 70,000 tonnes of paper, paperboard and laminates per annum into a variety of value added packaging solutions for the food & beverages, personal products, liquor and consumer goods industries.

ITC’s paper business clients includes Nokia, Colgate Palmolive, Pernod Ricard, Diageo, British American Tobacco, Philip Morris Interntional, Agio Cigars, UB group, Tata Tetley, Tata Tea, Reckitt Benckiser, Radico Khaitan, Akbar Brothers, Surya Nepal, VST industries etc. with three packaging factories at tiruvottiyur near Chennai, Munger in Bihar and Haridwar, the company offers a comprehensive product range in packaging backed by its packaging expertise over the decades and cutting edge technology making it truly a one stop shop for packaging.

ITC supplies packaging for over 80 million cigarettes a year domestically, and supplies packaging for 15 billion cigarette sticks a year for the export market to leading tobacco majors.

India’s annual paper board demand is nearly 4 million tonnes. India has the low per capita usage of paper around 13 kgs p.a as compared to world average which has per capita usage over 57 kgs p.a. India’s paperboard market is growing at 8% p.a.

Value added paperboards segment is the fastest growing paper segment in India driven by – increasing demand for branded packaged products, growth in organized retail, use of packaging as a key differentiator, especially in the FMCG sector.

ITC is market leader in value added paperboard segment. It has fully integrated ozone bleached pulp mill (3.5 lakh TPA).

ITC opened India’s first bleached chemical thermo mechanical pulp mill, which helped ITC reduce dependent on imported pulp.

ITC rebuilt its value-added paperboard (1.5 lakh TPA) line commissioned in August 2018, which is now operating at full capacity.

ITC’s Sustainable Packaging Solutions – Plastic Substitution

Bio-Degradable Boards

Recyclable Boards

Omega bev, Omega bar

Filoserve, Filopack

Completely Biodegradable under

composting conditions

Completely recyclable in existing

standard recycling conditions

Barrier against liquids/grease etc. at par with traditional plastic coated boards

Excellent oil and grease resistant

Properties

Omega Bev : Exclusively for paper

Cups

Filo Serve : Food serving

Applications

Omega Barr : Deep freeze applications

Filo Pack : Food delivery application

The Indian paper & paper products market is projected to grow from US$ 8.6 billion in 2018 to US$ 13.4 billion by 2024, exhibiting a CAGR of 7.8% during 2019-2024.

 

AGRI BUSINESS

ITC agri business is one of India’s largest agribusiness and has an exceptional record of development and innovation in the farm sector.

With a substantive presence in every node of the agri-value chain, its market leadership is sustained by enduring partnerships with farmers and farm communities across the country.

A leading domestic player and exporter spanning a comprehensive range of agri-commodities, ITC sources finest of grains, oilseeds, pulses, wheat & wheat flour, rice, barley & maize, fruit purees/ concentrates, IQF, frozen fruits, organic fruit products, coffee, spices, shrimps and prawns, soymeal etc.

A trusted supplier to discerning customers in India and in 60 international markets, ITC is the second largest exporter of agri products and the preferred one stop shop for high quality identity preserved agri commodities.

 

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Core Competencies:

1) ITC has crop development programmes covering over 17,000 hectares across states and 1,30,000 farmers

2) ITC has 65 hubs and over 300 warehouses spread across 20 states in India

3) ITC has India’s first and only privately-owned warehouse-cum-freight terminal

4) ITC has assured traceability with identity preservation programmes for specific varieties/grades

 

ITC SPICES SUPPLY PROCESS ASSURANCE OBJECTIVES

1) ITC has developed extensive field staff network promoting best farm practices. It has put 1 person for every 50 farmers across 210+ villages.

2) ITC has IT-enabled bar code traceability systems.

3) ITC has setup 13 member PCQI trained team implementing good handling & manufacturing practices.

4) ITC has NABL accredited in house lab ensuring positive release system throughout the supply chain.

5) Six sigma approach towards quality assurance.

ITC spices business has robust backward integration model with direct engagement with 10,000 farmers, 170+ villages and 35,000+ hectares crop area.

ITC spices backward integration approach is put to place a holistic framework of interventions delivered through three major programmes: integrated pest management, integrated crop management, preventive pest management.

Besides these, ITC has set up telephony based crop advisory & information services which is known as mana sandesham.

This scheme enables farmers to access to up to date agri related information, farmers are provided direct contact to ITC’s experts for timely advice.

It enables ITC to maintain regular contact with farmer partners across India. ITC spices holds a rainforest alliance certificate for its chilli production across 150 acres of farmland in Andhra Pradesh and Telengana.

Besides this, ITC has developed Site specific nutrient management. In this ITC is deploying remote sensing & GIS systems in mapping soil fertility to enable quicker scale up.

It helps to create spatial nutrient variability maps to evaluate nutrient requirements of specific soil types.

It helps ITC to customize fertilizer mix through an internally developed soil test crop response. It has helped ITC to reduce use of chemical fertilizers thereby minimizes the cultivation costs.

All this results in availability of cleaner crops for ITC. ITC is India’s largest IPM chilly grower. Besides chilly, ITC also deals in turmeric, cumin, celery, coriander, fennel, fenugreek, ginger and blended spices. Agriculture in India is projected to grow at a CAGR of 4.9% during the period 2020-2025.]

 

Gross Value Added By Agriculture & Allied Sector (US$ Billion)

 

FY18

FY19

FY20

Market Size

271

265.51

202.43

Rabi sowed as on January 1, 2020 (million hectors)

Products

Sector Compositions

Wheat

29.7

Pulses

14

Oilseeds

7.4

Coarse Cereals

4.7

Rice

1.4

Kharif Area sowed as on October 2019 (million hectors)

Products

Sector Compositions

Rice

32.3

Pulses

13.4

Coarse Cereals

17.99

Oil seeds

19.94

Sugarcane

5.24

Cotton

12.76

Agriculture Exports from India (US$ Billion)

Year

Total Agriculture Exports

FY18

38.21

FY19

38.54

FY20 Till January

28.94

Key Agricultural and Allied Sector Exports From India in FY20 Till January 2020 (US$ Billion)

Products

Exports

Marine Products

5.9

Basmati Rice

3.4

Buffalo Meat

2.8

Spices

3.1

Non Basmati Rice

1.6

Cotton

0.8

Oil Meals

0.7

Sugar

1.0

ITC’s unique strength in agri business is the extensive backward linkages it has established with the farmers.

This networking with the farming community has enabled ITC to build a highly cost effective procurement system.

ITC has made significant investments in web enabling the Indian farmer. Christened e-Choupal, ITC’s empowerment plan for the farmer centres around providing internet kiosks in villages.

Farmers uses this technology infrastructure to access online information from ITC’s farmer friendly website.

Data accessed by the farmers relate to the weather, crop conditions, best prices in farming, ruling international prices and a host of other relevant information. e-Choupal today is the world’s largest rural digital infrastructure.

The unique e-Choupal model creates a significant two-way multi dimensional channel which can efficiently carry products and services into and out of rural India, while recovering the associated costs through agri sourcing led efficiencies.

This initiative now comprises about 6,100 installations covering over 35,000 villages and serving over 4 million farmers.

Supporting the e-Choupal network are ITC’s procurement teams, handling agents and contemporary warehousing facilities across India, enabling ITC agri business to source identity preserved merchandise even at short notice.

ITC processors are handpicked, reliable high-quality outfits who ensure hygiene processing and modern packaging.

Recently the Government of India rolled out sweeping reforms for the farm sector including a new central law to allow farmers to sell their produce and get better prices as well as Rs 1.5 lakh crore package to strengthen agri infrastructure and logistics.

Essential commodity act will be amended to deregulate trade in cereals, edible oils, oilseeds, pulses, onion, potato and stock limits for these will be imposed only in exceptional circumstances.

A central law will be formulated to provide barrier-free interstate trade of farm produce and more freedom for farmers to sell directly or even online.

All this will directly or indirectly help ITC to grow its agri business since it is the leading agri player in India. ITC’s agri business is a hidden gem which has tremendous growth opportunity in future.

 

HOTEL BUSINESS

Launched in 1975, ITC hotels, India’s premier chain of luxury hotels, has become synonymous with Indian hospitality.

With more than 100 hotels in over 70 destinations, ITC hotels has set new standards of excellence in the hotel industry I accommodation, cuisine, environment and guest safety.

With all kinds of industries struggling to keep up with a new normal that seems to change everyday, ITC hotel chains is sticking to its credo of responsible luxury to navigate the situation of post covid world.

With the hospitality industry among the most heavily impacted due to lockdowns and the air rife with the fear of infections, and admittedly infections as well, the company is out with a brand new WeAssure initiative, geared towards assuring the health and safety of their guests as well as their employees.

In a first for the hospitality industry, ITC hotels will accredited by the National Accreditation Board for Hospitals & Healthcare Providers (NABH)- the nation’s leading standards organization for sanitation, hygiene, safety and infection control practices.

ITC hotel chain is partnered with DNV GL business assurance, of the world’s leading certification bodies, to ensure stringent clinical levels of hygiene and safety.

Recently ITC has partnered with food delivery giants Swiggy and Zomato to offer responsible dining experiences to the customers in the comfort of their homes.

ARR of the hotel industry in India stood at Rs 5,844.81 in FY 2019 as against Rs 5,527 in FY 2016 and is expected to touch 6,707.46 by 2024. RevPAR Indian hotels stood at Rs 4,022.76 in FY 2019 and is expected to reach Rs 5,305.91 by 2024.

ITC hotel chain is hopeful that from July onwards domestic tourism will start witnessing some recovery signs. Hotel Industry has suffered due to lockdown caused by covid-19.

Now a days, hotels had become more brand, not bricks. Many hotels will be committed to an asset light strategy.

A global future travel survey conducted in April 2020 by preferred hotels and resorts suggests a more optimistic outlook. The survey reveals people who want to travel with around half of the people across countries worldwide say they will book a trip in 2020 itself, and do so as soon as travel restrictions are lifted or eased.

Following the government relaxations on reopening hotels, ITC hotels south comprising ITC Gardenia, ITC Windsor, ITC Kohinoor, ITC Kakatiya, Welcome Hotel Bengaluru and Welcome Hotel Grand Bay Vishakhapatnam have started to welcome guests again from June 8.

With sales of immunity building products seeing an uptick in demand after the COVID-19 outbreak, ITC has partnered with direct selling company Amway India to launch a range of products in the segment, the first being one of its kind immunities offering in fruit beverages.

Priced at Rs 130, the new B Natural+ range of fruit juices contain clinically proved immunity boosters and will be sold by Amway’s micro-entrepreneurs for a limited time period, before ITC starts using its Pan India distribution network, ITC also sells its products on the online portal of reliance industries called Jio Mart.

ITC has entered into a share purchase agreement to acquire 100% of the equity share capital of sunrise foods private limited, a company primarily engaged in the business of spices under the trademark sunrise. The deal is estimated to be done for Rs 2,000 crore.

The proposed acquisition is aligned with ITC’s strategy to rapidly scale up its FMCG business in a profitable manner, leveraging its institutional strengths viz, deep consumer insight, a deep and wide distributing network, agri-commodity sourcing expertise.

ITC is already present in the branded spice category through its Aashirvaad brand. However, acquisition would significantly scale up its spices business.

The company would be able to generate synergies on sourcing and distribution due to its scale and Pan India presence through its FMCG segment. ITC’s factories that make essential food and hygiene products are already in operations with necessary permissions and stringent hygiene protocols.

Around 150 factories, 2000 wholesale distribution points, and 45 warehouses are operating in essential items.

ITC has launched its Savlon brand of hand sanitizers in a sachet format priced at half a rupee and meant for single use.

This price point and format make it the most economic hand sanitizer available globally. ITC has repurposed its perfume producing facility to produce an additional 1,25,000 liters of hand sanitizer, and zero contact surface disinfectant spray.

In first of its kind partnership between a quick-service restaurant and a fast-moving consumer goods company, Jubilant Food works, the master franchisee of the Dominos brand in India has partnered with ITC to deliver essential commodities at the consumer doorstep.

There has been a significant uptick in demand for essential food items including Aashirvaad Atta spices, salt, Sunfeast biscuits, and Yippee noodles.

Such high-quality Indian products have been flying off the shelves very fast.

ITC’s food division will be accelerating its offerings in the wellness and nutrition space. Recently ITC launched lassi in Kolkata and Bihar under the Aashirvaad Svasti brand.

After lockdown is released in some relaxations, ITC’s FMCG business is slowly getting back to normal demand levels. The company is seeing good demand for staples pieces.

There is some amount of stress but at an aggregate level, as far as foods and personal care is concerned, demand is coming back to a reasonable level.

Segments like education and stationery have been impacted because the sessions of school have changed, and the business is heavily indexed to the school sessions.

But ultimately children will have to go back to school and students will have to go through education. It is more a timing issue than anything else.

10 years back, the tobacco business contributed 60% and non-tobacco business contributed 40% revenues to ITC.

Today ITC receives 60% of its revenue from non-tobacco business. company’s 80% of capital employed is in non-tobacco business, 90% of its employees are in the non-tobacco business that reflects the kind of investment ITC is making in the non-tobacco business.

The company has free cash of around Rs 16,000-17,000 crore.

A lot of ITC’s investment in new businesses in this current phase is getting concluded because the company is building a foundation, the incremental investments in the future will not be much.

Therefore, the board has taken a view on the dividend distribution policy.

The dividends are going to be between 80% and 85% and so from a dividend yield perspective it is a big positive. The company has many small and nascent businesses that are incubating for the future.

In the food segment company wishes to put in place world-class infrastructure which will ensure that its product safety, hygiene standards are top of the line and to some degree, the company has invested ahead of time in the food segment.

ITC has also created structural advantages in the supply chain because foods are very freight intensive business.

It is about proximity to the markets, it is about freshness, it is about producing layers in the distribution chain so that company’s cost of distribution reduces, and as the company’s relatively older businesses are becoming bigger, company is seeing the impact on its bottom line.

Between 2017 and 2019, ITC has increased by 2.6 times. The company has built its businesses patiently.

Company has build the foundation and then got the results. This shows the company is aiming for good long term results.

The company has got into number of businesses in the recent past.

The company aims to scale up these businesses, to make them market leaders and once these businesses are scaled up, ITC will explore other areas of business because ITC wants to make the FMCG space really big.

ITC is the only brand that uses 100% Indian fruits in its fruit juices produced under the B Natural brand.

ITC is planning to boost its non-cigarette business revenue by launching 30-40 new products each year in a bid to become the country’s biggest FMCG company.

ITC has set a goal to achieve revenue targets for Rs 1 lakh crore by 2030 from the FMCG business. ITC has partnered with Flipkart, Dunzo, Apna Complex, My Gate, No Broker and Azgo to deliver its products to doorstep.

ITC is set to become one of the first frontline FMCG companies to start its own e-commerce operation from premium and niche products as it seeks to expand market share in the fast growing online sales segment and ensure wider availability of products.

ITC will sell both food and non food FMCG products from the e-store it launched, itcstore.in.

ITC has also launched an app for stationery products. The online are selling products in Delhi-NCR, Mumbai, Chennai, Bengaluru, Hyderabad and Kolkata. ITC has acquired a 33.4% in Delectable Technologies, a five year old start up engaged in fabricating vending machines and app based sale of FMCG products via machines.

ITC has been evaluating food trends during the lockdown and plans to launch new products in the next couple of months.

 

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KEY FINANCIALS

(In Rs crore)

 

2008-09

2018-2019

10-year CAGR 08-09 to 18-19

Net revenue

15,612

44,415

11%

PBT

4,826

18,444

14.3%

PAT

3,264

12,464

14.3%

Capital Employed

14,780

60,005

15%

Segment ROCE%

39.7%

70.3%

 

Market Capitalisation

69,751

3,63,714

18%

Q3 19/20

 

Q3, 19/20 (cr)

Q3, 18/19 (cr)

GOLY %

Gross Revenue

11,912

11,340

5

EBITDA

4,613

4,326

6.6

PBT (bei)

5,168

4,821

7.2

PAT 

4,241

3,209

32.1

Exceptional Item

(132)

   

PBT

5,036

4,821

4.4

PAT

4,142

3,209

29.1

Other Comprehensive income

(364)

428

 

Total Comprehensive Income

3,778

3,637

3.9

Gross Segment Revenue – Q3 19/20 (Rs crore)

 

2019-20

2018-19

GOLY%

Segment Revenue (Gross)

     

a) FMCG- Cigarettes

5,311

5,073

4.7

Others

3,312

3,201

3.5

Total FMCG

8,623

8,274

4.2

b) Hotels

552

452

22.2

c) Agri Business

2,095

1,925

8.8

d)Paper boards, paper & packaging

1,555

1,543

0.8

Total

12,826

12,193

5.2

Less: Inter segment revenue

914

853

7.1

Gross revenue from sales of products & sevices

11,912

11,340

5

FMCG others: Comparable revenue up 6.1 % amidst a further slowdown in demand. Atta, premium confectionery and liquid performed well and dairy scaled up.

Hotels: Revenue par improvement and addition of new properties.

Agri Business: Trading opportunities in oilseeds and pulses and scaling up of value added segments offset by subdued demand for leaf tobacco exports. Paperboards, Paper & Packaging: subdued FMCG/liquor demand and softening of global pulp prices impacted realization.

 

Segment Results – Q3 19/20 (Rs crore)

 

2019-20

2018-19

GOLY %

Segment Results

     

a) FMCG – Cigarettes

3,756

3,558

5.6

Others

108

77

40.4

Total FMCG

3,864

3,634

6.3

b) Hotels

87

60

44.8

c) Agri Business

213

199

7.4

d) Paper boards, paper & packaging

334

332

0.6

Total

4,498

4226

6.5

Less: i) Finance cost

12

6

 

ii) other un-allocable (income) net of un-allocable expenditure

(682)

(601)

 

Profit Before Exceptional Items & Tax

5,168

4,821

7.2

FMCG Others: Segment EBITDA up 48% to 256 Cr despite stepped-up marketing investment, an uptick in input costs and gestation & startup cost of new categories/facilities.

Hotels: Segment EBITDA up 40% to 157 cr. driven by higher ARRs and operating leverage.

Agri Business: Margins impacted by adverse business mix.

Paperboards, Paper & Packaging: Subdued demand in FMCG/liquor segment, lower realization and adverse business mix.

 

Segment-wise Capital Employed (Rs crore)

 

2019 -20

2018-19

MVT

Segment Capital Employed

     

a) FMCG- Cigarettes

3,494

3,634

(140)

Others

6,828

6,133

695

Total FMCG

10,322

9,767

555

b) Hotels

5,691

5,233

459

c) Agri Business

3,050

2,701

348

d) Paper boards, paper & packaging

6,137

6,134

2

Total segment Capital Employed

25,200

23,835

1,364

YTD Q3 19/20 (Rs crore)

 

2019-20

2018-19

GOLY%

Gross Revenue

35,024

33,157

5.6

EBITDA

13,741

12,734

7.9

PBT (before exceptional item)

14,787

13,490

9.6

PAT (before exceptional item)

11,438

8,982

27.3

Exceptional Item

(132)

   

PBT

14,655

13,490

8.6

PAT

11,339

8,982

26.2

Other comprehensive income (net of tax)

(621)

306

 

Total Comprehensive Income

10,718

9,289

15.4

Segment Results – YTD Q3 19/20 (Rs crore)

 

2019-20

2018-19

GOLY%

Segment Results

     

a) FMCG- Cigarettes

11,450

10,695

7.1

Others

276

185

49.1

Total FMCG

11,726

10,880

7.8

b) Hotels

115

89

29.3

c) Agri Business

666

629

5.8

d) Paper Boards, paper & packaging

1,020

939

8.6

Total

13,526

12,538

7.9

Less: Finance cost

41

26

 

Other un-allocable (Income) net of un-allocable expenditure

(1,309)

(979)

 

Profit before exceptional items & tax

14,787

13,490

9.6

Headline Financials: FY 18/19 (in crore)

 

2019

2018

GOLY%

Gross Sales value

75,309

67,082

12.3

Gross Revenue

45,221

43,957

2.9

PBDIT

17,306

15,541

11.4

PBT

18,444

16,439

12.2

PAT

12,464

10,953

13.8

Exceptional items

 

413

 

PBT (incl. Exceptional items)

18,444

16,852

9.4

PAT( incl. Exceptional items)

12,464

10,953

13.8

Other comprehensive income (net of tax)

363

382

 

Total Comprehensive Income

12,827

11,606

10.5

Gross Segment Revenue – Full Year (in crore)

 

2019

2018

GOLY%

Segment Revenue (Gross)

     

a) FMCG- Cigarettes

20,713

22,894

(9.5)

Others

12,505

11,329

10.4

Total FMCG

33,218

34,223

(2.9)

b) Hotels

1,665

1,418

17.5

c) Agri Business

9,397

8,068

16.5

d) Paper Boards, paper & packaging

5,860

5,250

11.6

Total

50,140

48,957

2.4

Less: Inter segment revenue

4,919

5,001

(1.6)

Gross revenue from sale of products & services

45,221

43,957

2.9

Segment Results – Full Year (in crore)

 

2019

2018

GOLY%

Segment Results

     

a) FMCG- Cigarettes

14,551

13,341

9.1

Others

316

164

92.4

Restructuring of lifestyle retailing Business

70

   

Total FMCG

14,937

13,505

10.6

b) Hotels

178

140

27.1

c) Agri Business

777

849

(8.5)

d) Paper boards, paper & packaging

1,239

1,042

18.9

Total

17,131

15,536

10.3

Less: i) Finance cost

34

87

 

ii) Other un-allocable (income) net of un-allocable expenditure

(1,347)

(990)

 

Profit Before Exceptional items & Tax

18,444

16,439

12.2

The company’s income total income from operations grew to Rs 48,352.68 crore in March 2019 from Rs 10,317.56 crore in March 2006.

The company’s net profit grew to Rs 12,824.20 crore in March 2019 from Rs 2,295.38 crore in March 2006.

During this period, ITC has not posted a loss in any year.

The company is also debt-free.

By saying all this, I prefer to add ITC to my core portfolio.

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Pritesh Patel
The founder of Patel Securities, Pritesh loves to talk about Stocks, Businesses, and Sectors.
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