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View | How the market missed ITC chairman's gameplan 

View | How the market missed ITC chairman's gameplan 

View | How the market missed ITC chairman's gameplan 
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By CNBCTV18.com Contributor Jul 2, 2022 5:15:35 PM IST (Published)

Some of the primary reasons for ITC's solid performance this year include strong growth across all operating segments despite the impact of the second and third wave of the pandemic, along with the encouraging recovery of the hospitality and education and stationery businesses. 

The growth and stock performance of ITC, the Indian diversified conglomerate, in 2022 has left analysts thinking. Even in such a falling market, ITC has been a stable stock for investors. So far this year, ITC's shares have risen by about 24 percent. The cigarette business kept some of the fund houses away from ITC for a long time as a more significant part of the business contributions would come from cigarettes.

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With Rs 13,000 crore net cash generations from operations with year-on-year growth of 32 percent in the 2021-22 fiscal, it was one of the most compelling reasons for the stock valuations to get re-rated. With more than 60 percent revenue coming in from the non-cigarette business — as per the last reported fourth-quarter — a different and stronger story is emerging for ITC now. Half the revenue is contributed by agriculture and fast-moving consumer goods (FMCG) — personal, homecare and food business.
ITC has made important value creation over time by investing in and growing non-cigarette businesses by using the surplus cash generated from the cigarettes business. It was strategy planned two decades ago to build these businesses.
The Right Strategies at Play
ITC Chairman Sanjiv Puri's emphasis on purposeful and cutting-edge innovation has led to the creation of sharply focused research and development platforms in areas aligned to market opportunities. This has led to the launching of several first-to-market products addressing dynamic and evolving consumer preferences.
Despite facing challenges on multiple fronts, ITC continued to innovate and launch new products tailored to the needs of consumers. A strong focus accompanied this on consumer centricity and cost efficiencies.
ITC Next
ITC has adopted the ITC Next vision, under which it will explore new routes to market for its FMCG portfolio. The digital Next enables the company to establish a 'Future Tech' enterprise while broadening its reach in emerging channels via partnerships with BigBasket, Amazon, Nykaa, and others. The company's tie-ups with McDonald's, Inox, Amway and Havmor ice creams for distributing its products illustrate this strategy.
'ITC Next' has helped put in place structural drivers to ensure that the enterprise would remain future-ready, nimble and inclusive. The e-commerce platform, the ITC e-Store, makes over 700 ITC products available in 15 Indian cities. It was a significant addition to its omnichannel distribution strategy.
The 'ITC e-Store' offers consumers on-demand access to a wide range of FMCG products across 45+ categories and over 700 products under one roof. Its approach to revitalising the FMCG portfolio by strengthening power brands, addressing brand adjacencies, and incubating new classes for the future aims to achieve scale and heft in the high potential segment.
The positive share price performance gains more significance when compared to benchmark indices. On a year-to-date basis, the return on Nifty 50 is -11 percent, while that on Nifty FMCG is -1 percent.
The rebound in the economy post-COVID resulted in an overall surge in business conditions. ITC contributed 25 percent each from food and FMCG business, 10 percent from paper & paper boards, hotels and IT, with 40 percent revenue share coming from cigarettes in in the fourth quarter of the previous fiscal. In 2021-22, the company has posted overall gross revenues of Rs 591 billion — a 22 percent year-on-year increase. ITC's overall revenues have seen a compounded annual growth rate of 8.8 percent from 2018-19 to 2021-22.
Changing perception to catch valuation
A recent equity research report by Jefferies stated, "At a time when most peers witness margin headwinds, every single segment of ITC has seen stable to expanding margins in Q4, with smart gains in cigarette & FMCG… ITC stands out given high margin visibility and we retain 'Buy'."
Some of the primary reasons for ITC's solid performance this year include strong growth across all operating segments despite the impact of the second and third wave of the pandemic, along with the encouraging recovery of the hospitality and education and stationery businesses.
While these reasons are pretty well known, not many people know about the company's underlying solid fundamentals and competitiveness. It is said that consumer centricity, agility and future readiness form the fulcrum of the strategic levers defined by the ITC chairman.
According to industry watchers, Puri has been aggressively driving growth and margin improvement across all business segments. In the past, the company has shown consistent performance, agility, and aggression, resulting from a series of strategic initiatives driven by Puri, who has repeatedly emphasised ensuring industry-leading performance across all business segments and strengthening the competitiveness of the group.
— The author, Deven Choksey, is managing director of KRChoksey Holdings Pvt Ltd. The views expressed here are personal.
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