ITC is a market leader in organized cigarettes industry in India. ITC stands at 79% market share in cigarettes segment in volume terms. Secondly, Godfrey Phillips India Ltd secures 11% share & VST Industries Ltd at 8%.
Over last 10 years the revenue contribution from other FMCG business increased from 12% to 22%. FMCG Brands of ITC have created significant market place with quality preference as well as popularity. Even though there were large brands already securing consumer preference. But ITC brands secured vast market holding.
(A) Change in ITC revenue contribution from segments in last 10 years
(B) Business Segments Growth
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ITC cigarettes brands include Insignia, India Kings, Classic, Gold Flake, American Club, Navy Cut, Players, Scissors, Capstan, Berkeley, Bristol, Flake, Silk Cut, Duke & Royal.
Several new variants were introduced during FY21 to cater to the continuously evolving consumer preferences and to ensure the future readiness of the product portfolio. These include the launch of innovative offerings such as ‘Gold Flake Neo’, ‘Classic Connect’, ‘American Club Clove Mint’, ‘Gold Flake Indie Mint’ and ‘Capstan Fresh Flavour’. Refreshed packs were also introduced for several ‘Navy Cut’ variants.
After 4 consecutive years of decline, Indian cigarette industry reported an increase of 1.5% in 2018.
Cigarette taxes in India ranks among the highest in the world. Therefore, high tax rates make cigarettes unaffordable to a large section of consumers & in turn the overall tobacco market experiences slow growth. The cigarette industry in India declined from 100.9 billion sticks in 2013 to 82.5 billion in 2018. During the same period, retail sales value has increased from Rs. 568 billion to Rs. 831 billion.
Moreover, Punitive taxes on the legal cigarette industry have resulted in rapid growth in the illicit cigarette trade, making India the 4th largest illicit cigarette market globally according to Euromonitor estimates. While legitimate cigarette industry volumes have declined consistently over the last decade, illicit cigarette trade volumes in contrast have grown rapidly during the same period, accounting for about one-fourth of the domestic industry.
The king-size segment in particular has been severely impacted in recent years consequent to the sharp tax increase of 19% on this segment under GST. The steep increase in cigarette taxes with effect from 1st February, 2020, has provided further fillip to illicit cigarette trade in the country.
There is volumes drop in last 3 years. But ITC achieved margin expansion.
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(ii) FMCG Others
(a) Lockdown affect on demand of FMCG products
Due to lockdown as people were staying more at home there were marked preference for larger pack formats as consumers sought to reduce frequency of purchase. Staples, noodles, biscuits, dairy products, sanitizers, hand wash, floor cleaners, etc. witnessed robust demand during the first half of the FY 21 however the demand got normalized during second half of the year. On the other hand, discretionary categories and those with relatively higher salience of ‘out-of-home’ consumption saw contraction in sales.
(b) E- commerce solutions
- As to respond to the multiple challenges arising out of restricted mobility of people and goods, curbs on working hours and outlet operations during FY 21, several technology-driven solutions were deployed by the company to effectively service the surge in demand.
- Company also rolled out the ‘ITC e-store’ – an exclusive direct to-consumer platform – to facilitate ‘contactless shopping’ and make its products accessible to consumers, which was the need of the hour.
- As a result sales through the e-Commerce channel more than doubled during FY 21, taking its salience to over 5% of Segment Revenue.
(c) New Additions to the portfolio
- ITC launched over 120 new and innovative products with compelling value propositions in record time, demonstrating agility and execution excellence.
- ITC’s vibrant portfolio of over 25 world-class Indian brands now represents an annual consumer spend of over Rs. 22000 crores.
FMCG Revenue for FY20 amounted to Rs. 12,875 crore, segregated in following brands:
Market Standing of brands
- Aashirvaad is No. 1 in Branded atta.
- Bingo! is No. 1 in Bridges segment of Snack Foods (No.2 overall in Snacks & Potato Chips).
- Sunfeast is No. 1 in the Cream Biscuits segment.
- Classmate is No. 1 in Notebooks.
- YiPPee! is No. 2 in Noodles.
- Engage is No. 2 in Deodorants.
- Mangaldeep is No. 2 in Agarbattis (No. 1 in Dhoop segment).
In terms of consumer spend, size of ITC major brands:
Overall estimated Revenue of FMCG Industry is Rs. 5.83 lakh crore.
(d) Scaling of FMCG Business :
- Company remains focused on rapidly scaling up the FMCG businesses anchored on strong growth platforms and a future-ready portfolio. Further, it seeks to fortify its market standing in the existing core operating categories, in many of which it is already a leading player.
- The reason behind this is as these categories, which are largely characterised by low household penetration levels and/or low per capita consumption, offer significant headroom for long-term growth.
- Company’s total addressable market expansion potential is amongst the highest in the Indian FMCG space.
- Company is well poised to address adjacent growth opportunities by leveraging the 25 powerful mother brands it has established over the years.
(e) Recent Brand Extension
- Aashirvaad to dairy, ready meals, salt and spices
- Sunfeast to dairy beverages and cakes
- Bingo to namkeens
- ITC Master Chef to frozen snacks and cooking pastes
- Savlon to surface & clothes disinfectant sprays, sanitizers, masks etc.
(f) Investment in FMCG Business
Company in FMCG businesses will continue to make strategic investments in building the new core’ by scaling up nascent categories such as Dairy (Aashirvaad Svasti), Beverages (B Natural), Chocolates (Fabelle, Candyman Fantastik), Coffee (Sunbean), Home Care (Nimyle, Nimwash, Nimeasy) and Skin Care (Dermafique, Charmis).
During FY 21, exports by the Branded Packaged Foods Businesses recorded robust growth led by atta, biscuits and Ready-To-Eat despite the operational disruptions caused by the pandemic. The Businesses currently exports to over 50 countries.
(g) Branded Packaged Foods
The Branded Packaged Foods Businesses remain focused on addressing emerging consumer needs with innovations anchored on the vectors of health, wellness, immunity and naturals.
(h) Efforts for Brand Building
The Businesses continued to make sharp targeted investments towards brand building and scaling up its nascent categories. By Cut-through advertising campaigns and consumer engagement both on conventional and digital media the company tries to focus of brand awareness among public. Digital campaigns launched during FY 21 received wide recognition and won prestigious awards across leading platforms.
(i) Hygiene and Personal care range
- Demonstrating a high degree of agility and responsiveness, the Personal Care Products Business rapidly expanded manufacturing capacity manifold across categories – Handwash 4.5x, Sanitizers 100x, Floor Cleaner 2.3x, Soaps & Antiseptic Liquids 6x – and enhanced availability of ‘Savlon’ antiseptic liquid, soap, handwash, hand sanitizer and ‘Fiama’ handwash products in the market.
- As a result ‘Savlon’ witnessed significant growth in revenue and reached nearly 1200 crores in terms of consumer spends during FY 21.
- The brand also strengthened its foothold in the Personal Wash & Hygiene category with the launch of the Savlon Hexa range of soaps and sanitizers.
(j) Education and Stationary Products
- The education and stationary products that are classmates and paperkraft brand witnessed very low demand as schools and other educational institutions were closed during the year because of lockdown. However company with its strong brand and robust product portfolio, product innovations, collaborative linkages with small & medium enterprises and superior distribution network is well poised to strengthen its leadership position in the industry.
(k) Responsive to New Trends:
- Increasing preference for products rooted to ‘Indianness’ & with regional/cultural connects.
- Growth in demand for ‘on-the-go’ consumption formats in low-unit packs.
- Also, influence of social media & digitalisation on consumer preference & consumer behavior.
- Moreover, ITC Life Sciences and Technology Centre is now working on various dimensions of health that will enable ITC to roll out products that help improve cognition, immunity, manage cholesterol, retention of calcium, among others.
- So, a pipeline of products on the health vector is currently a work in progress.
- In addition, ITC has a steep target to meet. By 2030, the aim is to realise Rs 1,00,000 crore (US$ 14.30 billion) of revenues from the branded consumer goods. Therefore, roughly a 16-17% year-on-year growth.
In addition, ITC in May 2020 acquired Sunrise Foods Private Ltd, which is market leader in eastern India in the spices category with a legacy of over 70 years.
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Portfolio of Hotels include:
- 30 Five-Star Deluxe/Five-Star Properties with nearly 6200 rooms.
- 45 Fortune Hotels with nearly 3300 rooms (The ‘Fortune’ brand continues to maintain its pre-eminent position in the Mid-market to Upscale segment, with the positioning of ‘First class, full service hotels – an affordable alternative)
- 35 Welcom Heritage Properties with nearly 900 rooms (The ‘WelcomHeritage’ brand retains its leadership as the country’s most successful and largest chain of heritage hotels)
In total ITC includes 110 properties over 70 locations. ITC Hotels work on Asset light strategy, managed properties account for 50% of ITC hotel group. The Brand names under ITC include ITC Hotels (Luxury), Welcomhotels (Upper-Upscale), Fortune (mid market to up-scale segment), WelcomHeritage (Leisure & Heritage).
Also famous culinary brand names ‘Bukhara’, ‘Dum Pukht’, ‘Royal Vega’, ‘Dakshin’, ‘Avartana’, ‘Kebabs & Kurries’, ‘Ottimo’, ‘EDO’, ‘Pan Asian’ and ‘West View’.
The Travel & Tourism industry, which accounted for appx. 10.5% of global GDP and 10% of employment in 2019, ranked amongst the most severely impacted sectors due to the COVID-19 pandemic.
As per the World Travel and Tourism Council, Travel & Tourism GDP contracted steeply by 49.1% in 2020 along with appx. 62 million job losses. According to the UNWTO World Tourism Barometer, 2020 was the worst year on record in the history of tourism, with losses estimated at 10 times higher than that caused by the Global Financial Crisis of 2007-08.
However with gradual withdrawal of restrictions, albeit with strict guidelines and protocols, the hospitality sector witnessed partial revival led by domestic leisure tourism and motorable destinations around large cities. The hospitality industry staged a progressive recovery with room occupancies and food & beverage (F&B) revenue picking up in the latter half of FY 21.
The F&B (Foods & Beverages) segment continues to be a major strength of Company’s Hotels Business with some of the most iconic brands in the country.
(iv) Paperboards, Paper & Packaging
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The demand of these products were affected due to various lockdowns. However with the easing of restrictions, demand across most segments witnessed a progressive recovery, barring the Writing and Printing Paper segment, which remained under stress due to closure of educational institutions.
The business continues to make structural interventions to reduce operating costs and dependence on imported pulp.
ITC is actively engaged in developing suitable paper/paperboards and barrier coated substrates that can replace single use plastics. During FY21, it launched anti-fungal soap packaging paper and also scaled up its sustainable products portfolio, comprising recyclable paperboards for the Food Delivery and Food Service segments, as well as biodegradable paperboards, which are alternatives to plastic coated containers, cups, and other deep freeze applications.
Packaging & Printing: The Business caters to the packaging requirements of leading players across several industry segments viz. Food & Beverage, Personal Care, Home care, Footwear, Consumer Electronics, Pharma, Liquor and Tobacco. New product development focuses on antifungal coated cartons, micro-perforation for specific laminates, braille feature for labels and cold seal laminates for chocolates. Thus, this segment services well the in-house requirements of cigarettes & FMCG segments of ITC.
(v) Agri Business
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- Against the backdrop of a challenging business environment. The Business continued to leverage its crop development expertise, superior product quality and world-class processing facilities and consolidated its leadership position in the Indian leaf tobacco industry.
- New business development and enhanced value delivery to existing customers. Enabled business to sustain its pre-eminent position as the largest Indian exporter of unmanufactured tobacco.
- Moreover the Business also continued to provide strategic sourcing support to Company’s Cigarettes Business.
Other Agri Commodities: Value added segment with brand names for products including Ready to eat, frozen foods, fruits & vegetables :
- ITC Master Chef
The Business remains focused on enlarging its scope of operations to include fresh and processed products in identified agri-commodities. Such as staples for the Food Service segment, fresh and frozen fruits & vegetables and spices.
As these businesses develop critical mass. The Business is also scaling up end-to-end presence across the value chain, supported by R&D capabilities of Company’s Life Sciences and Technology Centre and external collaborations.
The company’s strategic focus of the Agri Business in recent years has been to accelerate growth and enhance value capture by rapidly developing and scaling up its Value-Added Agri Products (VAAP) portfolio comprising Spices, Coffee, Frozen Marine Products and Processed Fruits amongst others.
(C) Free Cash Flow
Free cash flow of ITC grew at 30% for FY20. Thus, Consistent growth of free cash flow along with Sales & Profit expansion denotes strong position of the company.
(D) Enterprise Value
As on 30 July 2021:
- Market Cap of ITC is Rs. 2,52,331 crore. Enterprise Value (Market Cap+Debt-Cash & Bank) amounts to Rs. 2,47,682 crore.
- Cash & Investments amount to Rs. 29,906 crore as on 31 March 2020.
- EV/EBITDA = 11.33
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This Post Has 3 Comments
If we would have looked at ITC from only FMCG sector it would have stood no chance in front of the competition but, as a whole with their tobacco business which is a cash cow ITC has a huge advantage.
And now as they have started to improve margins in FMCG sector it feels like King(tabacco business) has prepared his prince(FMCG) for the battle ahead.
If you are interested you see my article which I recently wrote on ITC and it was appreciated by famous ITC shareholder and investor, D.Muthukrishnan.
Here is the link for it: https://arjunbadola.com/itc-itd-gold-flake-a-godfather-for-their-fmcg-segment/
It great following your blog cheers!
Sure & Thank you for appreciating !!
Probably ITC does not leave business margin for the retailers ,so small retailers stack Britannia in biscuit segment , ITC must be price competitive for retailers ,should go for products for common people also just as yepee noodles has become popular now . Redtapeism if any should be abolished , transparency in official matters and corruption if any should be looked into .If possible sectorwise office should be opened in other parts of the country .