Eastern gets 25% of revenue from exports to middle-east. This lowers the valuation.
Owners will continue to be in business of spices and there is not non-compete agreement. So looks like they will take away the export market eventually which is built on relationships.
Also, 100% stake commands premium.
Not sure about Eastern growth. Sunrise has had strong growth.
Eastern India where Sunrise is strong is still pre-dominantly a non-branded market compared to Kerala and south.
ITC has synergies(Kolkata based) and also brand synergies (Sunfeast, Sunbeam + Sunrise). Probably Ashirwad brand was getting thinly spread across too many categories.
This is incorrect interpretation. Acquiring brands at 4x sales is rather common. For example recently Zydus wellness acquired some constituents of Heinz portfolio at 4x sales (link). When Abbott acquired Piramal’s OTC division (which has similar characteristics as FMCG), it was done at 9x sales (link). HUL’s acquisition of Vwash from Glenmark would likely be at similar levels (although details are not yet out). Acquiring brands is an expensive proposition as creating brands require lots of time and money.
Thanks Krishna. What’s interesting about this video is that he did not mention the words cigarette, tobacco or hotels even once. This lack of prioritising these sectors was noticed during the Agm too. I think Mr sanjiv puri doesnt like cigarettes and hotels just as much as the rest of us don’t like them. Listening to the video youd think that ITC was just a cash rich FMCG company with backward integration and Esg norms. It looks like the investors and management’s interested have finally aligned under mr. Puri. Cheers.
I didn’t get any email from ITC for a declaration of Form 15. I received from all the other companies who declare a dividend.
Is it only me or no-one else got the email? And also they deducted tax on dividend so will I get the form 16 from ITC or not?
IDBI Capital initiated coverage on ITC with buy rating and target of Rs 259 based on SOTP valuation. The brokerage believes ITC offers perfect blend of reasonable valuation, decent growth and high dividend yield.
“ITC is less exposed to non-essential categories. Revenue contribution from essentials/semi essentials stands at 90 percent led by cigarettes and branded packaged food. Concerns on GST cess hike on cigarette (85 percent contribution to EBIT) by the government to meet fiscal deficit targets are temporary. In-elastic demand and ability of ITC to hike prices would support the bottomline,” the brokerage said…
Read through the article…very vague statements from the management. They are not clear of anything. They talk about alternative structuring of Hotels but seem to know nothing, not even what they want to do (at least thats what is evident from the article). Coming to Lifestyle retailing, they sold a brand that they created and now talking about opening stores with again a caveat that “Unless we have a specific idea on how we can win in this segment”…When will they get correct ideas…is anybody’s guess.
Contrary to what others feel here, so far I am not impressed by any interviews of ITC management. Clear direction and Strategy is still missing. We are not even close to that.
Disc: Invested and hence biased. No recommendation to buy/sell
As i mentioned in a previous post, Imagine ITC decides to sell off these hotels and acquire existing FMCG business in India with the money received from the sale, that will be what the street is excited about and not having a big hotel chain with significantly low ROCE’s. I would love to see ITC concentrating only in two business, namely Cigarettes and FMCG (packaging, Agri and IT support as subsidiaries of FMCG) that will do all the magic.
I think in diet biscuits (no added sugar/maida) also they will be number 1 (which is also premium segment). Farmlite spectrum of biscuits got very good response (checked in amazon and neighbouring stores). Thats why ITC stopped launching me too product. Instead exploring new markets (savlon wipes & spray).
In cakes, britannia has the leading edge. Dont know why ITC bounce cakes dont have multiple variants and distribution.
Likewise i wish ITC bingo should start launching baked chips (too yumm is capturing that segment) (although they have bingo starters but its not availale anywhere)
Disc: Invested.
Likewise as an investor, we should be within ours limits. I think ITC management is in the pressure of the back seat driving by investors ( break down your business etc etc).
ITC will be a tobacco company for at least a decade and we know that. I see no discussion on reduced risk products. Some of the questions we must ask is about the pipeline of products that can be launched in this space when government allows it. If ITC is forced to take help from BAT, then lot variables will change.
Happy investing!
Disclosure: Invested heavily in VST, ITC, Altria, BAT
This is an honest issue that I have and I’m hoping it causes a fruitful discussion. Please flag if you feel it doesn’t
While all of us are debating a re rating maybe the reason it has been bearish and has a fixed ceiling on price could be due to the government saying they wanted to sell their stake back in May via Suuti? They are getting desperate for money now and they’ve already begun the process of selling with HAL and Bharat dynamics and both stocks got totally beaten down for a short period due to this(and now they want to sell irctc too) so they are showing intent. Maybe the reason we aren’t seeing much interest and rises in the ITC price is since institutes are expecting to be able to pick up shares at a lower price? Why would they buy now if they know they could get it at about 10 to 15 percent less just by waiting a little longer.
Also, last year the government banned vaping. The vaping commission said that part of the reason this happened was because the government owned almost 28 percent in ITC. However they only own around 7 percent via SUUTI directly and the rest is via LIC etc. If they do decide to sell their entire SuUTI stake(the news was just from 3 months ago so its not dead news) maybe people are expecting a change in mindset of the government towards itc post that.
Disc: Invested. And will add more in dips if/whenever the above issues prop up since I’m buying it as an FMCG company a decade from now and not a cigarette company.
Interesting! Can you pls enlighten us about a point at least I am unaware of…why all tobacco companies, be it UK, US or India, peaked around June 2017 after multidecadal bull run? What happened across the globe for these companies?
Also, I believe that cigarette taxation in India is very competetive and similar to US…Pls correct me if wrong and if you are aware about taxation in UK/US and how it evolved there? Lastly, For ITC their next big baby is FMCG…is Altria and BAT going on similar lines or have already diversified? Thanks
Lot of changes happened around this time. Vaping started to pick up with some new products. People felt smokers will switch and the incumbents may lose their edge. There was also some consolidation that happened around this time.
Affordability wise india is nowhere close to US. The US government can keep raising taxes for many more years without impacting the market.
This is a very narrow analysis of only Director level persons. If you look at the people who are actually managing the businesses they are all professionals with relevant business experiences.
For example in the FMCG foods business: Sanjay Singal joined ITC as Chief Operating Officer for the Dairy & Beverages cluster of ITC’s Foods business on July 1, 2016. Prior to that, he was Head of Marketing for the Foods business of Dabur India Limited. In a career spanning over two decades, he has handled senior responsibilities across brand management for Personal Care and Foods businesses and also in Sales and Pricing.
He joined Hindustan Unilever Limited in 1995, after completing his MBA from IIM, Bangalore. He handled various responsibilities across Sales & Marketing for Unilever over 11 years in India and overseas. He was Senior Marketing Manager at Yum! Restaurant International, where he handled the ‘Pizza Hut’ brand for South Asia from 2005 to 2007.
Anuj Rustagi joined ITC as Chief Operating Officer for the Chocolates, Coffee, Confectionary cluster of the Foods Business on October 1, 2017. Currently, he also heads the New Category Development Segment of the Business. Prior to joining ITC, he was a global brand director at Unilever Plc, London.
After Graduating from IIT Kanpur, Anuj joined HUL in 1996 and completed his Master’s in Business Administration from ISB, Hyderabad in 2002. In his two-decade stint at Unilever, Anuj has held various regional and global leadership positions in marketing & sales in the Foods and Personal Care businesses of the company.
Management is not putting a lot of critical information in annual reports. But again many companies in India don’t. It would be great if anyone can help me with any insights regarding the following.
There are 5 cigarette factories for ITC. My questions are as follows:
1 - What are the exact figures regarding the capacity in terms of number of cigarette packs produced by each factory and capacity utilisation in each? The figures over 5-10 years may provide the real growth prospects for volume in terms of demand across India.
2 - For the last 5 years, how much they are making per pack of a cigarette or some measurable unit quantity per year. I have a hunch that this may be a major factor contributing to increase in revenue than point 1. Also why aren’t they investing in a good distribution network of their own rather than paying other distributors. A good focus on distribution will not only help cigarettes but also FMCG. Why even bother by focusing on capital intensive hotel segment when you can focus on a stronger distribution infrastructure of your own that will enhance the cigarette and FMCG segment earnings? (Real estate can lead to accounting shenanigans also, why not buy back shares instead?)
3 - These are by far some of the most important parameters I believe we might need to know to gauge how this core business segment is doing rather than just the reported revenue figures that can be easily be mixed and matched across different segments for such a large organisation. So why doesn’t management put such critical information in their annual reports instead of just reporting revenues?
We know that cigarettes make the core of ITC. One cannot just come to a decent conclusion on supply, demand and economics without answering the above questions. The aggregate revenues tell nothing. And everywhere in annual report they have talked about the same. And about how they are doing social good and stuff. I believe an honest management should always provide an answer to the above mentioned questions in a report addressed towards the shareholders. For, everything cannot be justified with a revenue based approximation in any company.
