ITC: "Will"(s) "Gold Flake" assist "Ashirwad" to win "Bingo!"?

[rajanprabu]

@Mayank_Bajpai

In contrast to the thriving cigarette business, ITC’s Agri/Core FMCG division faces challenges in achieving a significant jump in growth.

I would disagree with this observation. If we look at FMCG business Revenue grew from 5000 Cr to 19153 in the last 10 years and thats about 13 % CAGR. HUL grew by 8% while Britannia grew by 10 %. Thats an industry beating performance. Probably one will be disappointed by profit growth although margin improved from -4 % to 7% in the very snapshot that you have posted. But gestation was necessary for FMCG products especially at the scale ITC operates. I wrote about how HUL behaved during 1990s and how it margins went higher with scale & time here.

Hindustan Unilever (HUL)

FMCG margin has been consistently getting better. I have attached a snapshot from HDFC Q2 report below. [18] HDFC also said in a side note that ITC’s gross margin is at par with peers ( 40-45 % ) but low margin is due to Higher upfront brand investments and Losses in retail business. FMCG EBIT margin expansion was driven by enhanced scale, product mix enrichment and cost management initiatives notwithstanding higher investments in brand building and gestation costs of new categories. Everyon…

Although ITC may not reach the margins are HUL due to different product mix, better comparison is Britannia. Britain’s Margin ranges between 15 and 20 % ( probably based on wheat prices ). I do expect ITC to reach that margin range. In the last quarter ITC FMCG did 10 % margins. They aspire to increase margins by 100 bps every year. Interview posted above by Harsh.

@Mayank_Bajpai

While ITC’s diversified business portfolio may spark conversations about its potential sources of profit, the reality remains that the lion’s share of its financial success is derived from the cigarette segment.

I dont think anyone would say otherwise. Cigarettes dominate the profits and margins obviously due to the kind of business it’s in. Other sectors will never reach such margins for the same reasons.

@Mayank_Bajpai

the cigarette business continues to dominate the revenue landscape.

True for profits but revenues of other sectors have been growing consistently.

@Mayank_Bajpai

As investors and stakeholders, it is crucial to acknowledge that the key to ITC’s continued profitability lies in understanding the core strength of its cigarette business and its implications on the overall financial performance.

Everyone acknowledges that and one should not underestimate the investors especially those who read ValuePickr. Market always prices for future and future prospects of ITC played a role in revaluations along with robust performance of Tobacco division.