ITC files legal case against MRG and Finmedium!
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Improving store access. Let’s hope it clicks like bigbasket. Itc estore is still in its infancy so comparison is futile.
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As an ex smoker who shifted to nicotine salts I can add a few things. It’s a very crowded market. The real winners are the likes of juul who can sell their device/pod and have their customers locked in for their nicotine salts(since their pods don’t have a means for putting in competitors liquids… Officially atleast :)). Now jules has 60+ percent of the market on dollar share basis. The remaining market share is amongst players who don’t have their own liquids for eg vuse at 20+ market share. This liquid market is very very crowded. There are a lot of brands competing via flavors, pricing and packaging(packaging is very important in this market so that a bottle catches the eye among the 100s of options). The good thing is nicotine salts isn’t like a cigarette… Customers are willing to experiment with new flavors and brands unless they are stuck with a juul like device. So the key monitorables would be Checking the packaging and flavors itc come up with. Also, their target market… For eg nicotine salts at 20+ mg are targeted towards ex smokers. Under 20 mg and normal nicotine would be targeting new vapors etc. Ideally they end up in a contract manufacturing agreement with someone like juuls or even the incumbents and supply them with low cost approved nic and nic salts and the companies themselves brand and sell it… This would be fantastic and looks like the path they want to take. I don’t know what the margins would be but they would be able to benefit from a basket like approach in this case and wouldn’t need to bet on a few winners. The market will grow like crazy based on trends(apparently meant to triple by end of this decade) and smokers have to go somewhere if tobacco consumption goes down. So this is a good hedge to tobacco consumption for ITC. Legislation will as usual be key. If there’s no adverse legislation abroad the runway of growth will remain huge. If India reverses their vaping ban that will be the biggest trigger of all and will get their growth engine running again since they would then be able to push brands in a untapped(legally) market like India… Though the illegals have got a good start… Like I said stickiness would depend on perception of safety, cost and Continously adding new flavors. there isn’t much of a market for illegal salts abroad since people are paranoid since the early days of exploding devices, poison etc and its difficult to get a legal approval which itc should be able to maintain easily both here(if it ever happens) and abroad. One crazy thing that could happen is ITC exports the base nic and nic salts abroad to companies… These companies would add flavors and brand them. Itc get paid. Some of these could come back to India illegally and be sold in the black market as they are now. So ITC may actually end up benefiting from the growing illegal Market in India indirectly which would be fun to see after all the pain caused by illegal trading in cigarettes haha.
Note the above is based on my experience with vaping. I haven’t done a deep study so I may be wrong in some cases. Also, I just heard the news about ITC doing this so haven’t looked into it in detail. As an investor in ITC I am thrilled by this development and am glad that the capital spent is being spent on something within their core competency. This was on my list of potential triggers and I couldn’t wrap my head about why they hadn’t started doing this… And I’m glad I can now cross it off though obviously there’s a long way to go here
Disc: Invested
Note: I am talking about the US market above. ITC is targeting USA and Europe where vaping isn’t banned as yet. So I find my post is relevant. If anyone finds it isn’t then please flag. Vaping in India is banned as everyone knows so the post isn’t about the India market.
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Not a right comparison for 2021. Tobacco was a booming sector till the early 90s but with a lot of regulation, tax, awareness, the number of smokers have declined. Considering the effects of tobacco, the regulations will not reduce, it will only go up.
Disc- Invested
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Single Digit Growth in ITC
Reasons:
- Growth would get slower as the business gets bigger.
- Poor performance in the Hotel business [ Diworsification from Cigarettes ]
- Sales is driven by FMCG where as Profits are driven by Cigarettes. Sales and Profits should be coming from both FMCG and Cigarettes.
- Control or Lack of Control of non operational costs.
Probable Solutions
Since FMCG products take long time to gain market share, we are seeing the growth stagnating. I guess when ITC are able
- to streamline their distribution of FMCG
- to make sure their products are available and avoid product shortages.
- reduce focus on non profitable and low return ventures
It is still a good business with cash flows from cigarettes being pumped into FMCG. The question is when the profitability will increase in the FMCG. Hope it does’nt take too long.
Disclosure: Holding
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I would like to draw attention to a point from Warren Buffet in letter to Shareholders of Berkshire Hathway about the quality of Management in a company : “Eat What you Kill” philosophy. ITC top brass seems to be doing anything but that!
While Buffett recognized that shoes were a tough industry, he liked that H. H. Brown was profitable. He liked that the company’s CEO, Frank Rooney, would be staying on. And he definitely liked the company’s “most unusual” executive compensation plan, which he wrote, “warms my heart.”
At H. H. Brown, instead of managers getting stock options or guaranteed bonuses, every manager got paid $7,800 a year (the equivalent of about $14,500 today), plus “a designated percentage of the profits of the company after these are reduced by a charge for capital employed.”
Each manager, in other words, received a portion of the company’s profits minus the amount that they spent, in terms of capital, to generate those profits. The result was that each manager at H. H. Brown had to “stand in the shoes of owners” and truly weigh whether the cost of a project was worth the potential results.
Buffett is a strong believer in this kind of “eat what you kill” philosophy of executive compensation.
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Executive compensation is sensitive topic for shareholders . but again the press has deliberately presented facts in twisted way
Mr Puri has taken over as Chairman post demise of Mr Yogi . D who was paid Rs 16.6 crores as compensation which is line with other FMCG CEOs .
Now that Mr Puri has become Chairman his compensation has to be moved from CEO to Chairman compensation - Right … That is how it happens when you are promoted to next level … but straightway he cannot get Mr Yogi’s compensation so it is Rs 11 crores …
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It’s Q4 review, what is the reason for sharing it now?
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If they ban cigarettes, they have to ban bidis too, and it is not easy banning bidis as they are lacs of people who depend on the industry. Not just the farmers who produce tobacco but the daily waged people who make these products. I remember there was a strong opposition to implementing warning messages from areas where there were thousands of bidi workers as they perceived this to be a threat to their livelihood. Also, why would the government want to forgo tax altogether.
Government doesn’t have to ban cigarettes, illegal cigarettes have been making a dent to ITC’s business for years. Also smoking has been declining, perhaps this was understood by the management too years ago and could be one of the reasons for starting the FMCG division, along with the obvious lucrative nature of the business.
Go through the thread as you said you are heavily invested, a lot of of questions have been answered. This is a waiting game, until then enjoy the dividends along with the stability the stock brings to your PF, if you don’t consider the opportunity cost.
Invested.
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News Share - ITC food business expansion
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We all know ITC’s FMCG will drive growth while the cigarettes will bring in cash. I don’t remember the exact interview but I remember Mr. Puri saying that ITC will not invest any more into the hotels business. Then I read about Welcome brand and the new Storri brand.
I don’t know if I heard Mr. Puri wrong. But the hotel business is not so good for which someone has to change their plans.
Invested…6 years and running…
Hotel are cyclical business … and they do pretty well in economic upturn like Metals and commodities
For e.g between 2003 - 2007 … Indian hotels ( Taj Group ) profits went up by 10X and ROCE form 9% to 50%
ITC is only hotel chain which has built its capacity on Low cost of capital and enjoys highest profitability because of countercyclical investment and ownership of land ( critical input for hotel )
Now in future they are going for asset light model ie management contracts and experience heavy models ( ie high on service content & margins because of customised travel experiences )
How this will manifest we will have to wait and watch …
But the critical period now is how BAT plays the game –
Historically MNC companies played dirty game like Unilever between 2002 -2010 for HUL with lot of bad news surpassed the share prices and then big buy out of major controlling shares from public shareholders at rock bottom prices … Thereafter they will extract money through Royalty fees
Now Diageo is doing the same with United spirits and BAT wants to do the same with ITC …
Hence the spate of bad news will continue with help of social media influencers and bought out media
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News share - July 18, 2021 13:56 IST
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News Share - Jul 18, 2021
Potential to double India’s agri-exports
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As per the CRISIL ESG India leadership summit report, ITC did very well in ESG scores. They are at par or better than most of the FMCG/Pharma companies(Page 52 of the report).
crisil-esg-india-leadership-summit-2021-report.pdf (795.2 KB)
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ITC: Centre considers divesting its stake in ITC to meet selloff target - The Economic Times - for those who don’t have access to prime Govt is discussing selling off its stake in ITC in a bulk sale, the buyer has to be domestic FDI is not allowed in cigarette business
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ITC has been facing the heat due to huge float of its shares in the market. Govt. selling such a huge stake (8%) will only make matters worse atleast in the short to medium term.
While the govt is skeptical about the plan, Why can’t the GOI sell its stake back to ITC? ITC can buyback the shares at a slight margin which will make our neta babus happy.
It will reduce the float which will lift the stock price and EPS. Shareholders are happy.
BAT holding will increase. BAT is happy
Govt gets a premium for its stake. Govt is happy.
The only downside I see is that ITC will have a liquidity crunch for short term after paying for 8% of its shares. But it really wont be a big deal with the company having more than enough cash on its books.
Can minority shareholders vote for such a motion? Does anybody else see another downside to this?
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I doubt you can have only one shareholder buyback by the company. Buyback can be in open market or tender route. It may be possible that ITC buyback share from open market and government being on selling side. However, given the large volume, it would be difficult to synchronise such trade in my limited understanding. Also, ITC management in past have been getting support from LIC/SUTTI to block BAT influence on the company in my understanding. Hence, in case the management recognise to reconcile as BAT being their promoter controller, I doubt management would willingly provide exit to Government.
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Read this … The story why Indian Govt holds ITC shares … Historical perspectives
But pressures of such board battles can be immense … False cases by different lobbies can made to pressurise … ex ITC Chairman KL Chugh was sent to Jail for FERA violation along with other senior executives , and ITC was forced to bankruptcy by imposing obscene penalties
Yogi Deveshwar came in as neutral man - an unusual executive who though was employee of ITC - at request of GOVT became chairman of AirIndia and had turn it around …
Then he return when ITC was in major crisis … when most of entire senior management were in JAIL … He fought back (so that ITC will not run into BAT hand against many so called stooges) including HDFC then which refused to fund ITC … within 2 years he turnaround ITC back and then it never looked back … His dream for FMCG and others was to create as many Indian brands as possible so that we don;'t transfer money out to US and EU …
HUL too fought for its independence till Mr Dutta was Chairman … but Dadiseth sold out to Unilever … and rest is history - Royalty fees of 3-6% and buyout of HUL at rock bottom prices …
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