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.
ITC exits from lifestyle retailing business
Some pointers from the results.
Revenue from agri beat revenue from cigarette in the current qtr.
Net profit from paper is now much higher than agri and FMCG.
FMCG others business is lagging on every parameter. Requires hardwork and concentrated effort. FMCG results have been disappointing.
Hotels have had a good turnaround. Sentiments will change if the profitability rises.
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.
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.
Very insightful interview.
Disclosure: Invested (position size here, sold shares in last-30 days)
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.
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.
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).
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.
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.
ITC investor presentation on ESG initiatives. Worth a look.
Saw this in the advertorial today. A plotting scheme to be maintained by ITC.
ITC had invested Invested 20cr for a 16% stake in Mother Sparsh in 2021. The revenue was15.57crores.They targeted to hit 40cr in 2022 but did 33.53cr when ITC invested another 6% for 13.5 crores.
ITC also invested 39.37cr for 10% in MYLO (Bluepin technologies). MYLO clocked a revenue of 1.39cr in 2021. Its 2022 revenue is not available online.
Now, ITC has invested 175cr for 39.4% in Yogabar with MOU to invest more. Yogabar did revenue of 68cr in 2022.
None of these new age brands are on sale at ITC store and neither is Mother Sparsh on MYLO. This is not surprising since ITC has not been able to utilize its cigarette network to push sunfeast biscuits and Bingo chips, a space completely taken over by Balaji and Britannia/ Parle. Cross Selling is one of the biggest boons in FMCG business.
The 2% tax hike shall be passes on to consumer, that is positive bcoz the price hike of cigarette shall directly increase in revenue by 2% without volume growth. And the volume growth shall be additional.
A fellow member sought my view on ITC on personal message. The query was as under
"I wanted to ask you about ITC. I feel most of the concerns that were raised when it was getting lower valuation are still there (too much diversification, non availability of products, investment in hotels). Just that price has hidden all problems. Still 80% profit is cigarettes and that doesn’t seem likely to change in near future. Also, Reliance’s planned foray into FMCG is likely to affect most ITC FMCG products which already sell at a discount to market leaders (except Aashirwaad atta).
Wanted to know your thoughts."
In my view, neither decline nor increase in price is reflecting fundametal change in business. There was some ECG concerns and also immediate negative due to COVID which resulted in decline in price. Now, from Agri to Paper to Hotel business, outlook is favourable and price were relatively low which again driving interest in ITC. Having said that, if tomorrow, say for instnace, SUUTI decide to sale ITC stake, price may again see volatility.
I would consider following points in my decision to be invested in ITC
So, I would continue to hold ITC in my investment at current valuation. Will look at today results but would not be resulting in major change in my thought process.
As ITC approaches life high, I would also like to share various memes on Social media on stable price of ITC shares. Just for bringing smiles to readers face and realise how sentiment changes by 360 degree within months.
ITC Memes Compilation.pdf (323.5 KB)
Disclosure: ITC is my highest equity holding. My view may be biased. Not a SEBI registered advisor. Not suggesting any investment action to the reader, No trade in last 3 months.
