Hi,
This time every news house is printing the news of ITC infotech getting listed separately in last couple of days.
Latest is the Mint.
But the listing might come as IPO as per the above article.In that case how existing investors going to benefit,apart from parent company’s price appreciation due to listing of subsidiary???
Request Senior Boarders to throw some light on this situation.
Thanks,
Deb
IPO for a cash surplus company doesn’t make sense though. What will ITC do with the cash that it receives from the IPO? They already have more than 35k crore of cash reserves. Will there be a special dividend?
In Business Today’s July issue, it was mentioned that Puri is not committed to demergers, and that company will not take any hasty decisions. He said that ITC does not believe in doing things for short term excitement and is looking at long term, which is their goal. He also says that nothing is written in stone. But the demerger discussion was about other verticals and not IT.
It was a cover story, addressing many aspects of the company, providing the perspective of the management and the general consensus of the analysts.
So I guess, this could be all smoke without fire. I guess, seeing is believing is true with ITC.
If at all this ITC Infotech news is true, I would be surprised to see an IPO instead of a demerger…as you rightly pointed, IPO makes sense if a company needs cash…
Could other reason for IPO be the need for BAT to offload shares (i.e. in case they want to stick to only the core business going ahead) but they can also do that once price discovery happens in few days of demerger…however with such huge stake, they may have to strike multiple block deals…I guess an IPO will give them easier exit? Not sure, others can present their views on this or any other aspect…
Disc. Invested. Not a buy/sell decision. Above views only for academic purposes. I can be completely wrong in my assessment above
Not only the extra cash, ITC also has a huge shareholder base.Are these shareholders who are enthused about demerger ready to share the extra equity? What wil be BATs opinion here regarding equity dilution in such a golden egg laying hen?
One can easily me as one of the earliest bankers on ITC Infotech on this thread even before it began outperforming FMCG.
If Infotech and FMCG keep growing at the same pace what will be the share holder value in a few years without a demerger?
The whole hoopla over demergers, first for FMCG and now Infotech doesn’t make sense here. Not the logic of demerger, nor the noise surrounding it everytime.
ITC Infotech Demerger and IPO in this case should not be seen as a mere capital raising exercise. If it happens, it should be about
- Increased focus on the ITC Infotech’s business.
- Brining in investors (Technology centric investors) who can add value to the business (may be by providing exit to BAT from ITC Infotech).
IMHO, it will benefit the existing ITC investors because when the IPO happens they can get ITC Infotech shares allocated. And once the listing happens, in the current scenario, all IT companies (especially the ones in digital theme) are trading at juicy valuations. Of course, it depends on the ratio of share allocation for existing ITC investors.
I am not against spinning off ITC Infotech. It is a business that can grow on its own without too much capital infusion from the parent (unlike thenFMCG business which will still need cash from the cigarettes business), and spinning off will definitely bring more focus to it and will attract a much larger investor base. It is a cash generating business and can be self sustainable.
I am not able to understand why an IPO will be the preferred route for this separation. A simple demerger will be better and cleaner IMO. The company does not need additional funds - they are not being able to allocate existing funds effectively! The only scenario where it makes sense to me is if it is an offer for sale to some existing investors like BAT.
IPOs come at hefty valuations , nothing wrong having free hype/publicity and extra money by going via IPO route, if listing happens anything comparable to LTI or TataElxsi kind of valuation or maybe even better.
IMO, ITC can go for an IPO by providing an exit to BAT&LIC through OFS. ITC will not get any cash as there is no fresh issue of shares. Existing shareholders will get ITC Infotech shares.
More importantly in case of demerger if BAT decides to exit, it might impact the share price on the downside due to too much of supply. IPO looks to be the better route for value creation.
How would existing shareholders get ITC shares in case of an IPO? As per my understanding they can only get if they bid for it and get selected in lottery (even if they apply in shareholder category as that can also be oversubscribed, not to mention it will need extra capital to be invested as well)
But when would ITC products would hit the grocery stores shelves …they keep rolling out new products but no sales and marketing - they are selling these products to investors not customers. Have been observing new and unkown brands are getting the shelve space except ITC. I done see any Aashirwad product except atta on nearby grocery stores.
Which company has grown due to Veggie upma, Mutter paneer, and palak paneer? Does it have a high margin ?
Another inorganic part acquisition.
16% stake in Mother Sparsh, for 20 crores.
Mother Sparsh is a premium ayurvedic and natural personal care start-up in the D2C space, with focus on mother and baby care segments.
Last 3 years’ turnover of Mother Sparsh
2018-19 ~ 1.13 crores
2019-20 ~ 3.36 crores
2020-21 ~ 15.44 crores
It has a wide range of baby and mother care products that leverages the wisdom and knowledge of Ayurveda for potent product delivery.
Sameer Satpathy, Chief Executive, Personal Care Products Business, ITC stated – “We believe that this investment provides an exciting opportunity which is in alignment with our aspiration to have a significant play both in the naturals and ayurvedic segment as well as in the D2C channel. Mother Sparsh has, within a short span of time, evolved into an effective D2C brand with a range of innovative products and a lot of promise.”
Himanshu, CEO, Mother Sparsh said – “We are delighted that ITC has come forward to invest in our company which has been growing from strength to strength every year. ITC has been a frontrunner in developing a portfolio of vibrant FMCG brands and has been making giant strides in this space through focus on innovation and digitalization. We believe that this partnership will provide a unique synergy of strengths to build our brand further.”
So ITC paid 8 times the sales of the company. If any members have used Mother Sparsh’s products can opine. The star ratings are good on Amazon at 3.5-4.5, but all reviews are not positive, the products being Ayurvedic, skin problems have occurred to some buyers.
My personal thoughts are that, ITC has the financial might to make many such acquisitions, but I am not sure of the whole acquisition idea in FMCG space will be beneficial in the long run, in the sense that, these type of successful companies will keep on coming, like mushrooms, considering the many product categories ITC is present in and considering the regional diversities of the country in those categories. You are doing good, and I couldn’t do what you did, so I will acquire you, will take you only so far.
The other side of the argument does have merit. ITC will keep on buying small businesses and the product portfolio will increase, if these are new categories. Or there will be an overlap if they belong to the existing categories, so ITC’s own products which are not well received that belong to the acquired categories will cease to exist. Not every acquisition will be a success, but overtime there will be many regional brands which have good pull, will become ITC’s core portfolio. Perhaps a few years later, ITC will become number one in those categories, where it has acquired growing brands and companies. But such acquisitions have to make meaningful accretion to sales and profits, otherwise it will be acquisition for the sake of acquisition or expanding portfolio without any result, more so when the existing ITC products are not readily available everywhere, reflecting its poor distribution network, adding more products will make things worse.
Just my thoughts.
well, you yourself have hinted on the other side of the argument in the next para. Sometimes the aim is to Embrace and Extinguish the competition however small not expand the market or introduce new products. That’s also a valid strategy aimed at preserving your market share.
Apart from being a large part of my portfolio, I am also a regular customer of many of ITC’s fmcg products. aashirvaad select, bingo salt chips, sunfeast biscuits. I was also a customer of fabelle. But off late cannot find fabelle anywhere. What I find is that cadbury’s has expanded offerings after ITC’s fabell got these nice soft center chocolates. Now, the only option I see in bangalore retail is cadbury’s. No competition in this segment. Single bar of these chocolates cost 80 rupees. (mousse, hazelnut, oreo, bubbly etc.)
Sorry, if this is not a good thread comment. Only wanted to share as a customer. I have been adding ITC all along this fall
BAT is and will always will be spoiler to party, they have long desire to control ITC, OFS of ipo and non core business is only solution.
They will never allow demerger.