ITC Investor Meet Gives a Lot of Hints, Avoids Specifics

ITC Ltd, the grand old lady of Chowringhee Lane, conducted its first investor meet on 14-December. The stock of ITC has almost gone nowhere in the last few years. Just about 4 years back, ITC and Hindustan Unilever almost had the same market cap and looked like tough competitors in the FMCG business.

The reality was more one-sided as Hindustan Unilever stock surged to emerge among India’s 5 most valuable companies, leaving ITC way behind. It is in this context that a mountain of hopes were built around this meet. However, the company did drop enough hints on its restructuring plans, but skirted any questions on specifics. Here is the ITC story.

Addressing the cigarette issue

That has been one of the roadblocks to ITC’s valuation. While FMCG, hotels and paper were contributing to the top line, cigarettes continued to contribute over 85% to the profits of ITC. That was becoming the major concern for investors because the so-called FMCG vector was not showing traction and cigarettes were up against falling demand globally.

However, ITC CEO Sanjiv Puri underlined that ITC’s cigarette sales were back at pre-pandemic levels. He also appreciated the efforts of the government in cracking down heavily on illegal cigarette manufacturers who were outside the formal GST and taxation ambit. Sanjiv appreciated that government would widen tax net to include other tobacco products.

Restructuring is on, but details awaited

While the ITC investor meet gave sufficient hints about possible restructuring of the business, it avoided any specifics. Puri indicated that ITC was willing to hive off its IT venture as a separate entity. L&T has done that with enormous success. Puri also indicated that ITC would look at demerging the FMCG business and the hotels business. However, Puri also added that they would wait for hotel occupancy to get back to pre-pandemic levels.

However, the company has aggressive plans for its FMCG business. ITC is looking for inorganic M&A opportunities in the FMCG space, especially after the successful integration of recent acquisition of brands like Savlon, Nimyle and Sunrise. 

Growth vectors for ITC in the coming years

One thing the investor meet did outline was an aggressive growth plan, which inter alia covers as under.

1) ITC has laid out an investment outlay of Rs.10,000 crore to be spent over the next 3 years across key growth vectors.

2) Nearly 40% of the funds would be spent on expanding the capacity and reach of the FMCG business, which could include inorganic brand acquisitions.

3) ITC will allocate 30% of these funds to the paper boards business while 10% will go towards completing pending hotel projects.

4) The balance 20% of the outlay will be allocated to digital initiatives to ramp up the company’s digital capabilities and also to enhance its digital reach.