ITC’s plan to kick the butt; FMCG business set for rapid growth, these products to drive sales

The hospitality-to-FMCG conglomerate ITC Ltd recently met fund houses to share the company’s non-cigarette strategy, drawing attention towards other segments of the company. In an effort to kick the butt away, ITC highlighted that its FMCG business has managed to grow four times in the last decade. The conglomerate enjoys a commanding position in various sectors including, FMCG, Hotels, Paperboards, Packaging and Agri-Exports, while it has been exploring and gaining market share in new business segments as well. ITC is one of the biggest players when it comes to cigarettes in India. The stock has been trading at discounted valuations despite strong fundamentals in the recent months.

While sharing its non-cigarette strategy with fund houses earlier this month, ITC said that with its rapid growth in the FMCG sector, it is now the 3rd largest FMCG player in India, something that the firm believes has not been accounted for in recent market performance. In terms of the size of opportunity of the FMCG business the company believes it is much larger than peers in the space. ITC sees a potential growth of four times in atta and noodles, and a five times growth in spices. The company expects healthy growth opportunities in the floor cleaner and in the hand wash and body wash segment.

In the last one year, ITC’s share price has slipped 34% while in the last one month the fall is greater than 12%. Analysts at Kotak Securities said that the company currently trades at inexpensive valuations that are at 13X Sep 2022E PE along with a healthy 6% dividend yield. Data from Refinitiv shows that out of 36 analysts, 18 have a ‘Strong Buy’ rating on the stock while 11 have a ‘Buy’ rating and 6 have a ‘Hold’ rating.

Market participants believe ITC’s focus towards the FMCG business and its growth now becomes more important with Maharashtra one of the largest states in India, banning the sale of loose cigarettes. “The current environment, given weakening government finances, is already led by fears of a GST increase for only the second time after Jul’17. Amid this concern, the news adds to further apprehension related to cigarette volumes and cigarette EBIT growth, both of which have been under pressure over the past two years,” said Motilal Oswal in a report. The hospitality to FMCG conglomerate ITC Limited posted a 26% on-year fall in net profit in a coronavirus hit April-June quarter.