A new trading idea 📈📉

on
4

ITC: A Diversified Conglomerate with Strong Business Momentum

on
ITC logo

🏢 About the company :-

  • Indian Tobacco Company or ITC was established way back in 1910.
  • They are India's largest cigarette manufacturer and seller. They also operate in other business segments like FMCG, Agri, Paperboards, Packaging, Hotels & much more!
  • They also sell their products internationally considering more than 20% of their revenue comes from exports. 

🚬 Cigarette Business Doing Remarkably Well :-

  • When it comes to organized cigarette markets in India, ITC is the major players and leader with a dominant market share of 80%. 
  • The company distributes a wide range of products including popular brands like American Club, Berkely, Bristol, Capstan, Classic, Duke, Flake, Gold Flake, India Kings, Insignia, Players, Royal, Scissors, Silk Cut and Wills Navy Cut.
  • While the cigarette business only contributes to 40% of ITC's total revenue, it it still generates 81% of PBIT (Profit before Interest & Tax). This is due to the high margins in this segment.
  • In the past few quarters, ITC's cigarette business has been performing exceptionally well as compared to others contributed and helped by a series of favorable outcomes such as :-
  1.  The absence of steep GST/NCCD increase.
  2. The recuperation of temporary market share loss. 
  • The company has not hiked the prices of it products over the last 13-14 months, but still experienced pretty healthy volume growth which resulted in the best CAGR for cigarette sales since FY15.
  • This also means that they can easily hike prices in the future if needed to increase or maintain profitability without worrying much about the volumes.

Cigarettes

 👍 Other FMCG Segment Thriving

  • In the FMCG industry, ITC offers its products through more than 25 brands which include :-
  1. AIM (matches) and Mangaldeep in Agarbattis.
  2. WLS in Apparels.
  3. Aashirvaad, Bingo, Candyman, Sunfeast, Yippee noodles and mint-o in Packaged foods.
  4. Fiama, Savlon, Superia and Vivel in Personal care.
  5. Classmate and Paperkraft in Stationary. 
  • Aashirvaad Aata, Bingo, Classmate & Sunfeast are No.1 players in their respective markets.
  • Engage, Mangaldeep & Yippee are No. 2 players in their respective markets. 
  • FMCG segment, the second-largest contributor to ITC's total sales, is also witnessing strong earnings and growth momentum. 
  • Even after the intense pressure of commodity costs, the company's EBIT/EBITDA margins have been either growing or stable unlike most other consumer staples peers. 
  • The revenue from the Other FMCG business is expected to be greater than Rs.190 billion in FY23, making them the fourth-largest.
FMCG

🏨 Hotel Business Sales and EBIT Reaching New Highs

  • ITC started its hotel business back in 1975 and so far, they have been India's one of the fastest growing hospitality chains. 
  • Currently, they are the second largest chain of hotels in India, operating in 70 places and managing 108 hotels. 
  • ITC hotels can be classified under 4 brands :-
  1. Fortune Hotels :- Operating in mid-market to upscale properties pan India.
  2. ITC Hotels :- Tie-up with Marriott's "The Luxury Collection".
  3. Welcome Heritage :- A chain of forts, havelis, palaces & resorts. 
  4. Welcome Hotels :- Offering 5 star hospitality for travelers.
  • Sales and EBIT of ITC's hotel business are witnessing brand new highs, equipped with the second-largest number of rooms in India. 
  • A lot of events such as the G20 summit, men's IPL tournament, Women's IPL tournament and the Cricket World Cup in FY24 indicate a positive outlook for the hotel industry with good occupancy rates. 
  • The improvement in Average Room Rates (ARRs) for Hotels in India has been pretty good as well.
Hotel

📈 Positive Performance Outlook in Paper, Paperboard, and Agri Business :-

  • Currently, ITC is the second largest exporter of Agri products in India. They trade coffee, feed ingredients, food grains, marine products, processed fruits etc.
  • However, the major money is in tobacco leaf export as ITC is world's 5th largest and India's No. 1 exporter of the same.
  •  In the coming quarters, Agri business is expective to perform well and positive as the absence of exports in wheat and rice will result in improved margins for ITC.
  • When it comes to India's paperboards sector, ITC is a market leader with a dominant market share. 
  • Outlook for both paper as well as paperboard business is positive in the coming future as demand is healthy. However, margins for this segment can take a hit towards more normal levels from 4th quarter onwards.

Paperboards

💰 Strong Financial Growth :-

  • ITC witnessed a pretty healthy 23% growth in EPS in FY23 and is expected to register a CAGR of ~15% in EPS growth in the coming two years. 
  • Even after the National Calamity Contingent Duty (NCCD) was increased on all four filter cigarette categories in the FY24 national budget on 1 February, the total NCCD across these segments is less than 10% of the total indirect taxation which means that the effective increase would be less than 1%.

ITC Financials

👀 Conclusion :-    

  • The greatly diversified business portfolio of ITC is performing and executing exceptionally well, driven by strong momentum across all of its segments. 
  • With healthy performance outlooks in future in the cigarette, Other FMCG, hotel, paper, paperboard, and Agri businesses, ITC seems well positioned for a continued growth at a decent pace. 
  • Considering the company's financial growth is also impressive, everything so far indicates a bright future for the company.


Thanks for reading, I hope this blog was helpful :)

Comments

Post a Comment