Sanjiv is doing good job, he is just building company for long term , this should clarify why it is waste to expect short term small rewards than long term big picture :
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Hi,
Wanted to understand where you got the capital employed data from?
Also, regarding to hotels since these are long gestation businesses and the company has been investing on newer projects consistently but the room revenues to come over a longer period - The near term ROCE might be low. Not saying hotels business have great ROCE, but a point in time value might not give a good reading I feel
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Hi,
Had a couple of questions around the distribution strategy of ITC
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Do any of the members here have some idea what are the margins ITC pays to its dealers and retailers for its FMCG ( non cigarette) portfolio.Any ballpark Range also is helpful
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How does this compare with personal care products for HUL and say biscuits for Britannia.
Regards
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Eager to see how this will play out here :
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That’s an apt observation.
Also given that land value is calculated at historical prices, all updates to land assets of hotels segment alongside company must likely be attributed to new acquisitions.
By 2001, land assets were ~241 crores;
By 2010, land assets were ~959 crores, a differential of ~ 718 crores (new land that would’ve been acquired over the decade);
By 2020, land assets were ~2024 crores, a differential of ~ 1065 crores (~new land acquired over last decade).
Now if we were to consider land appreciation and the holding power of the company to attempt to monetize these over next few years, the fair value of these land assets must fetch well over 4500 crores. Is this right?
(Please help me reach closer to an accurate fair value of co land assets as of latest period in consideration as this should help in value unlocking for the company)
<Computation of fair value ~ 4500 crores as follows: applied a conservative multiplier 4x to historical costs of land assets acquired until 2001 (gives us 241 x 4 = 964 crores in current fair value) , a multiplier of 2.5x for the decade preceding 2010 (718 x 2.5 = 1795 crores), and 1.5x for the decade preceding 2020 (1065 x 1.5 = 1600 crores).>
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Why would ITC want to monetize lands ? ITC makes too much cash, main problem is effective use of cash and margin , which is where ITC is currently focussing on , as far as I understood , since ITC do not have better use of so much cash so it planned to distribute 80% of EPS as dividend.
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Instead of dividends they would have gone for buybacks. Which would have appreciated investors wealth and decrease the equity share capital
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They needn’t monetise their land assets, the idea is rather to determine the fair value of their investments into hotels which includes land parcels(valued ay historical), so as to ascertain better how they’ve deployed their capital into the sector they get the most flak for. Also by product of this is where value unlocking could happen for hotels segment into the future.
Why land purchases were very critical
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Agriculture land for seed production / critical medicinal herbs for Personal care & foods - Future Competitive Adv - R&D and product development
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Creating Quality Warehouse spaces at critical farmer level buying points & transit cities : To protect Quality of RM & Food Blends + City level penetration
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Housing for Staff across cities to convert variable increasing cost to current fixed cost with depreciation benefits
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In house Factory establishment - Quality protection & Improve market response
These lands are not freehold land that can be easily sold … as they will hurt business operations
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That’s apt, thanks for your observation.
Would you happen to know the breakup between land for hotels segment and land for other company purposes?
The goal is to put a fair value to hotel land assets as they’re represented by historical costs.
Govt and other promotors do not favor buyback as it will increase BAT holding % and hence control.
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If land asset value is driving your decision on stock , ITC is not the right stock .
You can look at Indian Hotels , Benaras Hotels etc or even some Real estate developer like Sobha which has decent land holding relative to their market cap.
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Distributor margin vary according to their products but it vary between 3-4%, which is less compared to its peers (4.5-5%)
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Personal care products off takes from store is quite less and only few of their brands in personal care portfolio are doing okay.
In Biscuit, Only two brand, Marie light and Mom’s are doing well in the market.
As an ITC investor, what drives me to hold it is it’s ability to diversify into many sectors and still control a very large cash reserve making it extremely anti-fragile an enterprise. It has found ways to generate returns utilizing both cost efficiencies and revenue generation discussed plenty, however, the appreciation of its investment returns in land hasn’t yet been discerned much, if at all.
It’d be nice to know return on all its assets to build a holistic valuation model for this behemoth of an enterprise diversified away into goods, services, r&d, financial assets and ‘land’.
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Since Dr Harsh Vardhan has resigned ITC should see some price traction ?
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Some nice words to cheer up shareholders and an indirect indication against demerger by Mr. Puri.
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So, here is a field report on ITC. This is for Delhi (south west distt.)
I am a shareholder keeping ITC as a dividend play with almost 10-12% of my portfolio.
Background : I usually buy monthly groceries from a local megastore which is almost 1 km from my home. Have been regular here for years now, so knows the staff & owners very well.
This store has been my ears & eyes specially on retail / FMCG front.
I think, this store caters to almost 2 km radius with approx. 2500+ homes.
Factcheck : So for the last two months, there has been issues with certain products of ITC.
Last month, there was no availability of Spices under Aashirwad brand. Repeat in this month as well.
Non availability of Aashirwad Ghee, happened for the 1st time, as it was high take off product.
Non availability of Candyman & Bingo Namkeen. Namkeens were in the shelf only once.
Non availability of Aashirwad multi grain Atta (there is a demand spike for this product).
Now, I happen to ask one of the employee, he told me no supply. I spoke to owners with specific queries. Owner gave me good insights :
- The employees think they are working in a Govt set up.
- Earlier there was single supplier for all the products, now there are different suppliers for different products. Still the supplies are a huge issue. Even the new supplier behaves in similar fashion, just like old ones, no quick response, no timely deliveries. Non availability of products.
- Whenever there is an offer for retailers, there are huge delays in the money being transferred to them, looks like the approval matrix is cumbersome. I am sure, similar issues would be there for distributors as well. ITC representatives are hardly interested in taking pain for their direct customers i.e. Retailers & Distributors.
- Today the owner himself said, I will make you speak with ITC distributors, he said, he is totally fed up with ITC supply chain, demand is there, however no or erratic supplies. He has stopped chasing ITC guys now & is focusing on other companies who can timely get the products delivered.
My Observations :
a) I can agree of FMCG supplies having major issues, I still think the demand is there & customers have to go for alternate/substitute products due to lack of company initiatives.
b) To make FMCG success, they really have to make it a lean structure. With changing customer tastes & preferences, if substitute products became better, the customer is lost forever for ITC.
c) I think, the margins are not that great for anyone in supply chain, hence the distributors are not preemptive in their response. With employees working like Govt servants, than its a pie on the top of Cake.
Disc : I am biased, this might be a local area specific scenario. I have my eyes & ears open. Can hold ITC for decades.
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Pls do not delete this post. I saw it, it is an amazing initiative and as many people must watch it. It is worth as much as all other posts in this thread!
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