ITC: Entering non-smoking zone - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

ITC: Entering non-smoking zone

Oct 13, 2003

Tobacco major, ITC Limited, is seeing an upswing on the bourses in recent times. In this article, we take a look at the reasons for the same. ITC dominates the Rs 130 bn Indian cigarette industry with around 70% share. The company has emerged as a strong No. 3 in the Indian luxury hotel segment (capacity over 1,500 rooms) and also runs the largest packaged board business in Asia. It is one of the largest exporters of agri/marine products in Asia. Its new businesses include garment retailing, packaged foods, greeting cards, matchsticks and incense sticks.

The growing awareness on harmful affects of tobacco as well as the government’s punitive tax policy forced ITC to move towards de-risking its tobacco dependent revenue profile. In FY00, the company identified hotels, paperboards, garment retailing, exports and packaged foods as its non-tobacco focus areas.

Segment Dominance Revenue
contribution
PBIT
contribution
Cigarettes Over 70% share 74.0% 91.0%
Paperboards/Packaging Packaging board – No. 1 in Asia 9.8% 10.7%
Agri business One of the largest exporters in India 13.9% 4.0%
Hotels ITC Group ranks No. 2 1.6% 0.5%
FMCG (Others) 15% share of greeting cards market 1.0% -5.8%

The effects of the strategy have begun to take shape. Till FY03, ITC had invested over Rs 8 bn in setting up new hotel capacity and is already the No. 3 player in this business. It plans to hike capacity to over 1,750 rooms by FY05. This business contributed nearly 2% to ITC revenues in FY03 and is profitable. Similarly, by FY03, ITC had opened 48 ‘Wills Lifestyle’ stores, but the business has still to turn profitable.

It merged its paperboards subsidiary – ITC Bhadrachalam with itself in FY02. Consequently, ITC now runs India's largest integrated mill and exports paperboards to neighbouring countries and also Malaysia, S. Africa, Iran, UAE and UK. It also supplies high-end packaging for FMCG sector. This business currently contributes nearly 10% to ITC revenues. ITC has targeted Rs 5 bn revenues from foods by FY06 and sees this business as a big growth driver going forward. In packaged foods, its product range includes ready to eat (Kitchens of India), staples (Aashirvaad Atta/Salt), confectionery (Mint-O, Candyman) and biscuits (Sunfeast).

Also, ITC’s Internet-based rural initiative for linking commodity trades throughout India has already connected 10,000 villages with around 2,100 e-choupals (FY03). This network will not only enhance ITC’s rural footprint but will also result in sourcing benefits going forward (for packaged foods and export business). Backed by these initiatives, cigarette share in ITC’s revenues has gone down from 77% in FY02 to 74% in FY03. However, cigarettes still contribute 91% to the company’s PBIT. This is likely to go down as its other initiatives become more profitable. As most of ITC’s capex plans have largely fructified, the company may look at enhancing its shareholder returns going forward.

At the current price of Rs 897, the stock trades at 14.2x our estimated FY04 earnings and market cap. to sales (net) of 3.4x. Given the company’s performance in the non-tobacco businesses as well as its continued dominance of the tobacco market, the company is likely to see encouraging revenue growth going forward. Among the concerns is that non-tobacco businesses like retailing and food are unlikely to be profitable in the next couple of years. But overall, ITC’s strategy seems to be headed in the right direction.

Equitymaster requests your view! Post a comment on "ITC: Entering non-smoking zone". Click here!

  

More Views on News

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

RUCHI SOYA INDUSTRIES 2020-21 Annual Report Analysis (Annual Result Update)

Nov 22, 2021 | Updated on Nov 22, 2021

Here's an analysis of the annual report of RUCHI SOYA INDUSTRIES for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of RUCHI SOYA INDUSTRIES. Also includes updates on the valuation of RUCHI SOYA INDUSTRIES.

MRS BECTORS FOOD 2020-21 Annual Report Analysis (Annual Result Update)

Nov 22, 2021 | Updated on Nov 22, 2021

Here's an analysis of the annual report of MRS BECTORS FOOD for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of MRS BECTORS FOOD. Also includes updates on the valuation of MRS BECTORS FOOD.

JUBILANT FOODWORKS Announces Quarterly Results (2QFY22); Net Profit Up 58.4% (Quarterly Result Update)

Oct 26, 2021 | Updated on Oct 26, 2021

For the quarter ended September 2021, JUBILANT FOODWORKS has posted a net profit of Rs 1 bn (up 58.4% YoY). Sales on the other hand came in at Rs 11 bn (up 36.7% YoY). Read on for a complete analysis of JUBILANT FOODWORKS's quarterly results.

NESTLE Announces Quarterly Results (2QFY22); Net Profit Up 5.2% (Quarterly Result Update)

Oct 20, 2021 | Updated on Oct 20, 2021

For the quarter ended September 2021, NESTLE has posted a net profit of Rs 6 bn (up 5.2% YoY). Sales on the other hand came in at Rs 39 bn (up 9.6% YoY). Read on for a complete analysis of NESTLE's quarterly results.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

How to Hit Rs 100 Crore Wealth in Your Lifetime (Equitymaster Wealth)

Nov 15, 2021

This is how you can achieve the ambitious goal of a net worth of Rs 100 crore.

Don't Sell these Stocks if the Market Falls (Profit Hunter)

Nov 17, 2021

These are the 3 types of stocks that you should not sell in a market crash.

MobiKwik IPO Opens for Subscription Soon. Key Things to Know Before Subscribing. (Views On News)

Nov 20, 2021

The Rs 19 bn issue is set to hit the market soon.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

COMPARE COMPANY

MARKET STATS