Just few cents here. Everyone complains that ITC products are not visible in the stores. Despite that they are generating a revenue clocking 15-16 K Cr. Imagine once they capture shelf space in stores. I completely agree to then point that they need to concentrate on proper distribution channels. Company is said to be working on distribution for last couple of years. There is also a conflict between distributors and online stores ( for all FMCG cos ). I hope there is some clarity soon on this.
Market is not giving bigger multiples mainly because of FMCG margin. I also dont see that suddenly jumping to 20’s soon. I have written here a year ago how HUL’s margin developed during 90’s. It is in HUL forum ( back then ITC page didnt exist ).
In 1992 HUL had a margin of 6% ( Taken from Annual report of 2001).
I couldn’t find older Annual report older than 2001 HUL. so I couldn’t see how was their margins before. Margin expansion for ITC mainly will come from ICMLs.
They are strategically located close to agri procurements and automates the production hence bringing the cost down. HUL for example outsource these and some argue that thats why they have higher margin, but since I dont have any numbers for ITC, so I cant comment on that. Capex that ITC announced on FMCG is going to building these facilities. I believe FMCG margins will slowly increase in the coming years and dont expect a big leap anytime soon. It will be gradual but steady.
When will market notice such a development and reward by giving higher multiples, thats not in our control.