Categories Analysis, Consumer, Research Summary

ITC is burning and not just Cigarettes – A primer on the stocks

“After two years of pandemic-led disruptions, FY 2022-23 marked a return to normalcy in operations. However, geopolitical tensions, continued supply chain dislocations and climate crisis resulted in unprecedented inflation and volatility in global commodity and energy prices.”

ITC Investor Presentation – Q4FY23

Stock data

ExchangeBSE and NSE
IndustryTobacco Products
Price Performance:
Last 5 days-0.16%
Last 1 year+60.5%

Company description:

Established in 1910, ITC is the largest cigarette manufacturer and seller in the country. ITC operates in five business segments at present — FMCG Cigarettes, FMCG Others, Hotels, Paperboards, Paper and Packaging, and Agri Business.

Business Verticals:

  1. FMCG – Cigarettes:

ITC is the leader in the organized domestic cigarette market with a market share of over 80%. Its wide range of brands include Insignia, India Kings, Classic, Gold Flake, American Club, Wills Navy Cut, Players, Scissors, Capstan, Berkeley, Bristol, Flake, Silk Cut, Duke & Royal.

Despite this vertical contributing only 40% to the revenues, it is the most profitable business of the company with 81% contribution towards PBIT. 

India is the 4th largest market for illegal cigarettes. While the consumption rate of legal cigarettes is only 1/10th in the tobacco industry, It accounts for 4/5th Tax revenue share. Legal cigarette industry remains under pressure due to growth in illicit duty-evaded cigarette consumption. 

  1. FMCG – Others:

ITC has 25 mother brands spread across multiple FMCG sectors. Popular brands include:

– Packaged foods: Aashirvaad, Sunfeast, Bingo, Yippee noodles, Candyman and mint-o

– Personal Care: Savlon, Fiama, Vivel and Superia

– Stationary: Classmate and Paperkraft

– Apparels: WLS

– Agarbattis: Mangaldeep and AIM (matches)

Many of its brands are leading players in their markets. Presently, Aashirvad Atta, Bingo, Sunfeast & Classmate are No. 1 players in their markets. Yippee, Engage & Mangaldeep are No.2 players in their respective industries.

  1. Hotels Business:

Launched in 1975, ITC Hotels is one of the fastest growing hospitality chains in India. It is the second-largest hotel chain in India, with 108 hotels at 70 locations in the country, operating across multiple market segments. It possesses a room inventory of ~290,000 rooms.

Its hotels are classified under 4 distinctive brands.

– ITC Hotels: which has an exclusive tie up with Marriott International Inc’s ‘The Luxury Collection’.

– Welcom Hotels: which offers 5-star hospitality for the discerning business & leisure travelers.

– Fortune Hotels: which operates in mid-market to upscale properties hotel segment all over India.

– Welcom Heritage: which brings together a chain of palaces, forts, havelis & resorts that offer unique experiences. 

ITC Narmada is a luxury 291-key hotel in Ahmedabad was launched in August ‘22

In Q2FY23, two new properties were added to the portfolio under the ‘Storii by ITC Hotels’ brand – Storii Shanti Morada in Goa and Storii Amoha Retreat in Dharamshala.

  1. Agri. Business:

ITC is the second largest exporter of agri products from the country. It trades in feed ingredients, food grains, marine products, processed fruits, coffee etc. It also exports leaf tobacco under this vertical. ITC is India’s largest and world’s 5th largest leaf tobacco exporter.

New Spices facility at Guntur is expected to be commissioned shortly and the World-class manufacturing facility at Mysuru for export of Nicotine & Nicotine derivative products to US/EU is making steady progress.

  1. Paperboards, Paper & Packaging:

ITC is the market leader in the value added paperboards segment. It is also India’s largest converter of paperboard into high quality packaging. ITC manufactures the entire spectrum of paperboards – from 100% virgin, food-grade boards which are made from renewable and sustainable sources to 100% recycled boards.

Investments in VAP capacity, pulp import substitution, cost-competitive fiber chain, decarbonisation of operations, data analytics and Industry 4.0 enabled margin expansion despite escalation in key input prices.


What we like:  

  1. Diversified Business Portfolio:

ITC operates in multiple sectors, such as FMCG, hotels, paperboards, packaging, and agri-business. This diversification helps spread risks and allows ITC to benefit from different revenue streams. 

  1. Strong Presence in FMCG:

ITC is a market leader in various FMCG categories. Its cigarette division, for instance, holds a significant market share in India’s tobacco industry. The company’s FMCG portfolio also includes successful brands like Aashirvaad (flour, spices, and ready-to-eat products), Sunfeast (biscuits and snacks), and Classmate (stationery products).

  1. Focus on Innovation and R&D:

ITC invests in innovation and R&D to introduce new and improved products. The company has developed unique packaging solutions to ensure product freshness and extend shelf life. Additionally, ITC’s agri-business division focuses on sustainable farming practices and value addition through research, leading to the launch of premium quality products like Aashirvaad Svasti Ghee made from cow’s milk.

  1. Sustainability and Social Responsibility:

ITC is committed to sustainable practices and social responsibility. The company has implemented initiatives such as the ‘Triple Bottom Line’ approach, emphasizing environmental sustainability, social development, and economic performance. For example, ITC’s ‘e-Choupal’ initiative promotes digital connectivity for farmers, enhancing their access to information, markets, and farm inputs.

  1. Long-Term Growth Potential:

ITC operates in sectors with promising long-term growth potential. The rising middle-class population and increasing consumer spending in India present opportunities for ITC’s FMCG products, hotels, and agri-business. As consumers’ preferences evolve, ITC continuously introduces new products to cater to their needs. For instance, ITC has expanded its FMCG portfolio to include health and wellness products like Sunfeast Farmlite Digestive All Good biscuits.

  1. Dividend Income:

ITC is known for its consistent dividend payments. For investors seeking regular income, the company’s track record of paying dividends can be attractive. ITC’s dividend history and the percentage of profits allocated for dividend distribution can be observed in its annual reports.

Factors to consider:

  1. One of the reasons for lower relative valuation of ITC as compared with peer companies is due to Cigarettes being not good for society health. As a result, many institutions are liquidating their holdings in ITC.
  2. The allocations of the enormous cash flow generated in Cigarettes is pumped into ventures which have a long gestation period. Till now the management has been able to provide hope. We might not know when their effort would reflect in the bottom line.
  3. Hotel industry is like the airplane industry which is capital intensive, historically generating poor return for the investor. Hence, ITC pumping more money into it might not be a very good financial decision.

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