According to newspaper reports, ITC Infotech Limited (wholly owned subsidiary of ITC) has entered into a deal with Infobank (UK) to provide e-commerce related services. ITC's information services division is also a part of the deal.
ITC operates in five principal areas of tobacco and cigarettes (market share 66%), hotels, paper and packaging, and international trading. It is the industry leader in its core business of cigarette manufacturing and tobacco leaf procurement, processing and exports in India. The product portfolio includes popular brands like Wills, Gold Flake, India Kings and Classic.
The companies plan to provide a number of services under the agreement including application-hosting facilities for business to business trading communities. ITC also plans to collaborate with Infobank to develop business to business e-commerce software and market the latters' products in the Indian sub continent. Finally, ITC itself plans to use Infobank's products in an attempt to automate its purchasing and supply processes.
ITC's main line of business, tobacco, has been growing at a marginal rate of 5% (in volume terms) over the last three years. The company was thus forced to generate revenue growth by raising prices at regular levels. This had led to many analysts downgrading the stock.
In this light, the possibly high growth infotech venture could lift the sagging topline of the company. Infact, the decision to implement the infotech products within the company also wold go a long way in cutting costs, This would help ITC in improving its margins. Also, the diversification is welcome in view of the increasing litigation being faced by tobacco companies.
The drawback is that ITC lacks experience in operating in the increasingly competitive infotech sector. This could prove to be a hindrance in breaking into the Indian market. Also, the timing for the venture (or the venture itself) may not be right in view of ITC's recent thrust into hotels and the litigation being faced by its tobacco division.
The stock has been rated as a 'BUY' mainly on account the company's dominant position in the market, the strong brands in its product portfolio and also the 3 mn strong retail outlet distribution network. The company's thrust into the infotech sector is also leading analysts to affirm their 'BUY' rating.
ITC Ltd has announced third quarter results of the financial year 2016-2017 (3QFY17). The company has reported 4.7% YoY and 5.7% YoY growth in revenues and net profits respectively. Here is our analysis of the results.
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