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

Curious how can we confirm that BAT is satisfied with management? I am surprised BAT with such big stake does not give the management a tough time when they invest in say hotels or make nothing out of their IT company (compared to other IT players in India) or have no clear profitability lined targets for FMCG and other businesses etc…Is BAT happy with dividends alone and not bothered about share price? Will dividend be sustainable if Cigarettes gradually die down and FMCG profitability fail to launch?..Thanks

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Tobacco to die down is very unlikely scenario also with most of the investments out of the way for FMCG, margins should improve with volumes. I don’t see major issue for dividend as such in next 3-4 years

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Why we are comparing their IT company with other IT companies ? ITC IT wing is just to manage their internal technology needs. We are looking at PAT by IT wing but what if they don’t have IT and paying heavy amount by outsourcing their work.

(This can be deleted by mods if violates some rules/ guidelines)

Almost all the views posted here on this thread, especially after the ride from ₹200 to ₹170 - are somehow implying that we know more than the management.

It’s a century old company for god’s sake. Its management is well aware - that shareholder returns are being compromised and hotels are not much profit generating.

A couple of years of underperformance and suddenly ITC is being perceived the next ADAG.

A well “ranted” blog piece then comes out to satisfy the hunger of “retail investors” who just aren’t patient.
A perfect example of Narratives follow Prices.

Regarding Hotels and FMCG Margins, these businesses weren’t started a couple of years ago, hence blaming them for stock’s underperformance should be ruled out.

I had posted this earlier, and would post again, I am forever optimistic on ITC, and believe in the management, but if someone else doesn’t, why would he remain invested in this script?

Regarding minority shareholder complains, Sanjeev Puri Sir did acknowledge the fall in share prices and mentioned that appropriate steps would be taken.

Yesterday, I saw a tweet, where similar stock price movement to ITC was visible in MO and PM. Is ITC’s management to be blamed for their underperformance too?


What’s MO and PM.

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No, they have a IT company ITC Infotech which caters to external customers. This is divorsification at its worst. I had a chance to interact with top management. Unfortunately ITC infotech top management came from ITC tobacco biz. They were in no position to compete with leadership of other tech companies.

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PM - Philip Morris
MO - Altria

PM is a subsidiary of Altria.

For long term investors only:

> One estimate put forward by JM Financial pegged FY30 EBITDA of ITC’s FMCG business at a level higher than the combined FY20 EBITDA of Nestle India, Britannia, and Tata Consumer.

“Profitability is low at present, but we reckon with the investment phase largely over and profits and cash generation would get much bigger from here on,” JM Financial said.



Lets look at ITC approach to procurement and share services

ITC infotech - is Internal IT department which caters to external customers so that it is self sufficient . Hence it is not a cost center per say . Cannot compare with Infosys

ITC agri business : It is RM procurement department for tobacco and Food business … but services external customers so that it is profit centre and not cost centre . Cannot compare with Global Agro commodities majors like Cargill

ITC Paper and packaging Department is multilevel packaging department of ITC … which focus on paper packaging again cannot be compared with Global Packaging major in the world

ITC builds its own factories , hotels , employee housing complex , Retail stores, warehouses … but cannot be compared to even likes of Oberoi Realty …

++ taxi services , Tour operator , laundry services , Restaurants ,

Earlier it did vegetable retailing , selling clothes and many other stuff

Now why does Corporate ITC does so many services which it can outsource –

Because ITC is like Fund house that funds ideas - any idea that can earn it > 10% yield better than liquid fund + 4% or inflation +4% … it does that activity …

This not typical of FMCG companies which tend to outsource all their activities other than core branding , marketing …

Indian FMCG companies outsource production to OPC , R&D to MNC Parent , Warehousing and other services to Warehouse providers and Procurement to companies like ITC – Yes there are times when Britannia buys wheat from ITC


This is a very dangerous mentality to have if you are a shareholder. I am a shareholder myself and this makes up a significant portion of my portfolio. But not to question management on their serious case of capital mis-allocation history is a sin on an investor’s part. This is exactly the kind of mentality that gives management total power to act in their own interest pocketing all the gains that you could have as a part owner of the company. Enron is not too far behind as a lesson to be forgotten that easily. Even a good company can be ruined by management acting in their own interests. Cigarettes no doubt are a great business, the sole reason why we keep invested, but the returns would have been much better if the capital allocation was sound. Keeping a decent promoter holding was much better in terms of equity rather than foraying into hotel business. Just imagine the returns they would have had for the shareholders after that sort of a good financial engineering.

As I mentioned earlier, without giving the above information in annual reports how can one come to a conclusion of how the largest cash generating unit of our company doing? How are the supply and demand economics of cigarettes today compared to 10 years ago? What is the consumption per capita of cigarettes that can be estimated for a country like India from the company that has 80+% market share? How is that changing since the last 5 years or 10 years? There is no information of this par provided anywhere in annual report. Even the best consumer companies in world like Coca Cola and Procter and Gamble provide this sort of numbers no matter their size. Especially Coca Cola in their every annual report provides the precise number of unit cases sold every year along with their capital allocation decisions regarding the bottling investments, advertisement costs…etc. ITC can also do that stuff if its managers want to. But there is no reply to the countless emails you might send to them to ask for this information. All this questions have got nothing to do with a falling share price or the stock price movement. But rather to make a sound judgement of how a company might be doing.

For my selfish sake I would love to see it fall more to buy at a discount to account for any discrepancies that may be present.

In history they might have been right to get into hotels business in 1975. I do not know. But they definitely seem to be a drag today. Just imagine the cash that might have gone into buying and running them for the past 45 years to generate marginal returns. And what kind of things management could have done with the accounting standards back then. The shareholders could have easily used it to buy into different avenues they deemed more profitable. While I would love to see ITC own better consumer brands, I have no reservations against the FMCG business where they seem to be going for lower margins higher volumes play that might be better suited to the structure of ITC.

Mr. Puri likes to push forward propaganda for ESOPs. Stock option compensation may be okay for top level management but to bat for ESOPs for majority of employees is like giving them a free ticket to pocket that huge differential sometime in the future. Mr. Buffett has also warned investors against the potential dangers of stock option based compensation. As he says, a performance based incentive for employees make a much better sense.

My question is simple - Why defend the management for giving you decent returns when they could have given you much more?


While history does not repeat itself, but it make sense to know history of the company, particularly with company like ITC which has all the issue of management having all power with limited responsibility. While on various blogs and threads, there are various concerns being presented and discussed on this thread, which is perfectly fine. However, one need to be clear about investment what it expect from portfolio?

ITC has been of very few company which has remain large in size and shown moderate growth over lifecycle. The way I look at ITC is allocation to fixed income portion of financial investment with having very long equity option which may provide huge upside or may result in nil valuation at end. We all, including experts on blog would know about the outcome only in future. So no point on analysis and trying to forecast future for all of us.

My summary of thoughts:

  1. Can ITC sustain dividend of around Rs 9-10 over next 8-10 years? In my view, probability of same is more than 50%. Hence, it take care of fixed income interest portion for me.
  2. Second point, in fixed income, I have certainity of principal repayment while in equity I may suffer loss. Having said that, most investor in fixed income (excluding G-Sec and AAA Corporate) are significantly leveraged (I refer to financial sector like Bank/NBFC). I find equity value in ITC has better chance then leveraged institution. We all know problem of ILFS/DHFL/Rel Cap bond investors. In my limited understanding, while Cigarette business is likely to be cash-cow for next 8-10 years, FMCG others could provide growth. This may be biased view and my track record of forecasting is pathetic at best (Please refer to Shemaroo and Care Rating where I made big mistake beside Arrow Greentech). But investing is also involve taking call based on once comfort and invest, I definitely find Nestle ad HLL being better at capital allocation, but the price do not provide any support in my limited understanding. I have already shared my wokring of 50 years return on ITC.

I would also like to look at investor in HLL (return from 1999-2009) or Reliance Industries (from 2008-2018 period.) There was virtually no movement in price for almost decade. 2012-2022 may be ITC’s lost decade.

However, decision to provide 80% of cashflow to return broadly provide limited scope for management to misallocate the capital. The product they manufacture are also among the best in quality. This is again may be subjective view but I find that ITC has compromised probably on profitability to provide superior quality to customer and that itself can provide big competitive advantage over a very long period.

Putting all positive, still ESG related concern and overhang of supply from SUUTI may continue to put downward pressure on price. However, I would wait for time to provide final verdict rather jumping to conclusion. Having said that, I have already taken leap of faith and allocated 10% of equity portfolio to ITC. Reader shall take note of this while reading this thread. As Krishna say, we are entitle to karma (i.e. to decide to invest or not), the fruit of karma is not in our control. After my working and analysis, I have executed on my side, the final outcome would be known only after 5-10 years.


Dhiraj sir, what is your opinion on the hotels business though? Don’t you think that even after the 80% dividend payout the capital allocated to them could very well be allocated to the FMCG business with a proper restructuring of equity? (@dd1474)

Hotel is not a core and ideally shall be seperated out. Having said that, they have started Hotel in mid70s and since than, during 1975-2005, ITC would be among top 10 wealth creator in India. So, when company was misallocating capital resource, wealth was increasing (as Cigarette was in growth phase then) and now when they categorically say that no further large investment in hotel, past hotel misallocation are being cited for lower valuation. Not saying that Hotel shall not be divested and it was a mistake, but at least, hence forth, the further increase in mistake is unlikely if management walk the talk.

Second part people are missing, that ITC top management would have major skin in game. They would have almost 70-90% of their financial capital in ITC share. If stock performed well for next decade, “skin in game” would be cited as major reason for ITC wealth creation. Very fewlarge companies have so much alignment of interest of top management with business in my opinion.

Last, from this AGM management talk, I got a feel that management know what is wrong with them and realisation of problem is first step to solution. If equity price continue to linger on, I feel very soon we shall drastic decision which have not been taken in last 5 decade. I may be completely wrong in my assessment.

One request @kpc, we all are student of market and in Market is there only one sir, which is Market. Let us give respect only to market and call it market sir. You can call me with only my name.


I have tried to calculate Gross sales of cigarette for the period financial year 2016 to 2020.

Screenshot from 2020-10-07 17-27-12

The source of information is company’s annual report from year 2016 to 2020. Gross sales value is picked from table titled - “Ten years at glance” and cigarette sales as % of total revenue is picked from table titled - “Principle business activities of the company”.

Direct calculation from segment reporting is not possible due to implementation of GST.


3 things stand out in terms of shareholder movement when you look at holding and number of holders:

  • FPI numbers declining is consistent with the declining trend of their holding. From 1118 entities in March 2019, they’re down to 929 entities in June 2020 after having touched 914 in March 2020. (expected)
  • Small retail shareholders have lapped up their holding with the number of shareholders rising from 8.3 lakh in March 2019 to 14.6 lakh in June 2020. (expected)
  • While mutual funds increased their holding in the period, the number of entities has declined significantly, which could indicate a more concentrated holding. This is a pretty interesting data point. (Anecdotal – ITC is PPFAS’s largest holding as per PPFAS’s August disclosures and Saurabh Mukherjea seems to have exited ITC)

Your entire post rests on the flawed logic that monopoly must be ended to create profitable brands in any industry. There’s always room to grow even with existing giants in the industry. IT, Pharma, Infra, FMCG, all have both quality big and small players. Some big players today were not so popular a decade back, you can verify. For ITC, it’s the ITC label that does the marketing, something most will realize 5-6 years too late.

Institution % of holding is stable and increasing ( March 19 to June 2020)

Most HNI will move their holding to Trust or other institution ( companies formed in foreign location) over period of time because of tax on dividends … This is temporary restructuring that will happen in all high dividend stocks like ITC , Power Grid , NHPC etc …

As global yield in other instrument decline for stable returns high dividend stocks will be in demand

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Can you pls let us know more details about this point. As per some articles I could find, CEO and Directors ESOPs were not agreed by BAT and instead their cash salary was increased. This happened in 2019. So, going forward, skin in game is not increasing but rather reducing. Pls correct me if wrong here as this is very important point as per me. Thanks

While it is true that henceforth ESOP is likely to be issued more frugally by ITC as top investor have negative view on same, in order to maximise reward, despite marginal new ESOP, the management need to struggle hard to make ESOP in the money. In the declining market, ESOP would be under water and near money and with limited new supply of ESOP, in order to create personal wealth, I would not leave any stone unturned if I am one of the top management eligible for ESOP. Also, I do not see things are bilateral. If ITC wealth creation improve, the investors may change their view as well. There is no hard and fast rule in dynamic market.

I also hold investment in 3M and Honeywell. In these companies, even Indian top management are issued equity related payment by way of Parent companies. I find that situation being completely against minority shareholder. Whenever there is conflict, the top management, subconsciously likely to lean towards parent given the equity compensation being linked to parent. I do not mind if full payment of top management are paid by parent company. In both this cases, Parent charge subsidiary with allocation for top management equity shares. I find this completely against Indian minority shareholder. Having said that, business is never about only one part. While this may be concern, there are many benefit of these corporate which derive strength from their parent supprot and R&D leadership, that I am willing to ignore this point in investing. Only limited point, I wanted to make that companies which I trading at 50-70 PE, have management compensation equity portion linked to parent while company trading at 15 times PE have management compensation linked to Indian corporate. I find this something interesting and not justifiable, if management compensation was only parameter for equity evaluation.

Please note that my view are “blinded” (biased would be understatment) as ITC is my top holding in equity portfolio.



ITC’s Savlon is set to cross
consumer spend of | 1,000 crore this year, a
more than fourfold jump from last year. A
slew of products were launched during the
pandemic under the Savlon brand keeping
in mind the consumer requirements.
Disinfectant spray, sanitisers (plain,
medicated), wipes, disinfectant cleaning
products, multipurpose disinfectant liquid,
and clothes were some of them

Interesting conisdering ITC paid < 250 crores to purchase both Salvon and Shower to Shower Brand from J&J in 2015