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

Indeed good quarter for ITC. However FMCG other margin has shrunk to 7.8%, I think it was around 9% in previous quarter and 8% previous year. But still good one considering high inflationary environment. Let’s see how next coming quarters unfold in terms of FMCG other margin.

Disc - Invested.

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ITC exits from lifestyle retailing business

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Some pointers from the results.

  1. Revenue from agri beat revenue from cigarette in the current qtr.

  2. Net profit from paper is now much higher than agri and FMCG.

  3. FMCG others business is lagging on every parameter. Requires hardwork and concentrated effort. FMCG results have been disappointing.

  4. Hotels have had a good turnaround. Sentiments will change if the profitability rises.

  5. Itc infotech results are in-line with other it cos. The management is looking to divest but I am of the opinion as a shareholder that the divestment should not happen unless ITC Infotech is beating LTI, LTTS, Mphasis and Mindtree on most parameters.

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The inclusion of hotel Samrat is not clear. Plus the hotel is to be given on lease for 60years or 99 years without the adjacent land parcel.

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Very insightful interview.

  • ITC’s strategy of backward integration has served them well over time and company is doubling down on it through expansion in their MAARs network.
  • ITC plans to spend 3000 cr. on capex annually with 70% going towards FMCG.
  • There might be hit in topline in the future as some topline growth recently has come from large trading opportunities in agri commodities segment which come at very low margins
  • FMCG strategy is to create mega brands and once done, expand through offerings in adjacencies
  • Currently have 6 mega brands (1000 cr.+ annual sales) and hoping to add a couple more brands in this club
  • Currently in discussion with another D2C brand in mother and child space
  • With more stable tax regime on cigarattes in the recent past, should be able to claw back some market share from unorganized players

Disclosure: Invested (position size here, sold shares in last-30 days)

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ITC Results

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Itc launches Candyman xl chocolate. The pricing and packaging seem to be in direct competition to Cadburys dairymilk. I have seen a lot of dairymilk chocolates being sold at Pan Parlours/ smoking shops. Makes for a good opportunity to exploit cigarette distribution to increase sales for Fantastik XL range.

Commercial for Candyman

Paves way for Fabelle to fight with premium sweets and chocolates.

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Interesting news appear in ET about rural focus of ITC FMCG business. I see this as the most critical variable beside Cigarette tax for long term wealth creation of ITC.

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ITC seems to be doubling its efforts in the hotels segment rather than bowing to a segment of investors who wanted to demerge hotels business. Although, their strategy to go asset light seems to be paying off.

ITC currently seems to be the second largest Hotel brand in India after Indian hotels (Tata).

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I think I did read about their interest in hotels in this thread itself. Perhaps it is true that no matter what, they will not leave this segment, even if it were to bring some losses. And I guess right now, there will not be any backlash considering the CMP. Investors are happy.

Also, even if the management’s actions are seen unfavorable regarding hotels segment, if other segments are growing, and if that growth is reflected in the price, and along with the almost given dividend yield, I guess everything will be fine.

Invested.

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ITC spices :

I have covered about ITC spices a while ago here.

ITC focuses on sustainable food safe spices. The new factory that was inaugurated recently is a fully backward integrated factory covering from seed to product. Its important to note that ITC is working with the farmers around this region for many years.

About ITC Global Spices processing Unit
Spices : Chilli, Turmeric, Blended organic spices
Area : 6 Acres
Capacity : 20,000 Tonne per annum ( phase I )
production lines : 4 lines ( Tropical spices, seed spices, High VO spices and sterilised products )
certification: BRC, FDA FSMA, FSSC 22000, USFDA Organics, NPOP

When the Phase II is completed it would be 38,000 Tonnes. They are also working on spices competitiveness with farmers using agri full stack application ITC MAARS. WIth such a scale and automation I expect them to be efficient and may bring costs down compared to competitors. There is also a huge scope of export markets.

ITC distribution Network :

I did and scuttlebutt and wrote about increased rack space for ITC products in tier-2, tier-3 cities. Covered here.

with recent article saying that ITC is focussing on the Rural areas, our conviction on improved distribution is validated.

In the last quarter report company has claimed that ‘Fiama’ and ‘Vivel’ has got a good traction.

One of my good friend who works in FMCG says distribution is the King when it comes to selling FMCG. ITC seems to be more aggressive in distribution compared to earlier. They always had good connections due to their cigarette business. But with FMCG they are now more and more visible and gaining shelf space in markets.

This is from the tier-3 rural side. I was quite happy to see Fiama/Vivel got almost same shelf space as Pears.

This also agrees with the claim that they got more traction. I did not see Fiama/Vivel there a year ago.

Overall happy with aggressive efforts and pushing more distribution to reach end retail stores. My observations are mostly from southern part of India. Conclusions may vary depending on your location. So please take my observations with a pinch of salt.

PS:
This is not an investment advice. Holding same as of last post. No transactions last 30 days.

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ITC investor presentation on ESG initiatives. Worth a look.

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