In the article, we discussed What will happen to the business of ITC? If the rumor is actually true.
guess what? All the questions and speculations regarding the demerger plan were discussed in the recently concluded analyst meeting of ITC held on 14 December 2021.
Since the announcement of the much-talked-about ITC’s first analyst and investor meeting, ITC’s share price has seen a lot of interest.
However, its share price has declined 4% in the past two days.
Here are the main things discussed in the meeting
In its first investor meeting on 14 December 2021, cigarette maker ITC clarified on the strategy of taxation, demerger schemes and fast growing consumer goods (FMCG) business on the cigarette business.
According to analysts present at the event, ITC had not given any concrete plans for demerger or listing of companies to unlock value, but did not rule out those options for the company either.
However, the market was expecting some concrete announcements from the company management in this direction in the meeting.
ITC chairman Sanjeev Puri said the company is open to the idea of demerger of the non-cigarette FMCG business and listing the information technology (IT) business if it creates sustained value for shareholders.
ITC has not postponed the demerger plans for the hotel business, which will be done as soon as the industry recovers.
On the cigarette business, Mr Puri said the recovery in the first half of the financial year has been strong. There is premiumization of the portfolio backed by innovation and superior last mile execution. The economy is stabilizing, which augurs well for this category.
He further added,
‘Cigarettes account for just 8% of tobacco consumption. In a period of tax stagnation, the legal cigarette industry lags behind the illegal and volumes firm up.
In the recent past, when taxation increased by 15%, revenue collection from cigarettes increased by 5%. In a period of tax stagnation, revenue grew 10% led by volume.
We hope that the government will take care of all these as industries and farmers were also badly affected due to the pandemic.
Higher tax on cigarettes may affect business
ITC’s top management discussed taxation on cigarette business.
The company’s top management insisted that the health ministry make recommendations annually. He tried to allay concerns about high taxation on its cigarette business.
According to analysts attending the event, what Mr. Puri said,
We expect a reasoned decision by the government after considering all aspects and expect that any increase in taxation will be well done in any case.
He also highlighted that this time the recommendation of the health ministry is much broader and covers tobacco products other than cigarettes.
Since the government has appointed an expert group to draft a tax policy on all tobacco products, investors are concerned about the performance of ITC.
Investors are also concerned about the decline in cigarette use globally. Puri, on the other hand, claims that cigarette sales have already returned to pandemic levels.
Given that taxation remains consistent, ITC is expected to gain market share as a result of the government’s fight against illegal cigarettes.
ITC’s FMCG space will be the key growth driver going forward
ITC is exploring merger and acquisition opportunities, especially for its FMCG business, following good performance in the recent acquisitions – Savlon, Nimile, Sunrise.
Sajeev Puri says the company is ready to acquire regional brands or enter new regions or adjacent regions in this category, but it will be selective, the acquisition should be value accretive, and it will also come at an extraordinarily high price. Won’t buy
The company has set a 1 tn revenue target by FY 2030 for your FMCG business.
ITC also cited inflation and pressure on its margins as a result of rising input prices.
Despite experiencing exceptional inflation in edible oil, palm oil and packaging, the company’s management said that it will be able to maintain 9% earnings before interest, taxes, depreciation and amortization (EBITDA) margin in the first half of FY22. was capable.
A little about the other main business areas
ITC focuses on processing and value added items in agribusiness. Its value-added products will boost growth and margins.
It also claims to be a global leader in scale, profitability and sustainability in its paper and paper board operations.
On the other hand, with improved consumer mood and dynamics, ITC has witnessed a strong rebound in the hotel market.
According to a report, leisure travel is recovering well, but business travel is still sluggish, at 40-50% of pre-Covid levels.
On the other hand, hotel occupancy has already returned to pre-pandemic levels, and ITC expects its hotel business to perform better in the third quarter than in the second.
ITC also said that it sees significant opportunities in the IT industry, especially in the current situation.
Company’s capital expenditure plans
ITC’s investment plan Will go ahead with 100 billion more acquisitions over the next three years, while paying dividends of about 80%.
ITC Chief Financial Officer Supratim Dutta said. 100 billion investment is planned for the next three years, 35-40% will be spent on FMCG business including cigarettes to create new lines as sales and demand increase.
Whereas 25-30% will be spent on paperboard business as the nature of business is capacity based growth.
The hotel business will contribute 10% to complete the existing projects and the balance will be contributed to the agri-business to sustain digital growth and profitability.
Equitymaster at ITC
In August 2021, Rahul Shah, co-head of research at Equitymaster, wrote an editorial on why this is the best time in years to buy ITC.
Here is an excerpt:
I have a deep feeling that unless there is something wrong with the fundamentals, the stock can reach a nadir.
To put it differently, the stock may not drop much from the current levels. Conversely, this may be the best time in the long run to buy the stock.
Why?
My optimism stems from the low interest rates on offer across a spectrum of asset classes.
Take for example fixed deposits. I recently renewed my FD with a leading private sector bank at an interest rate of 5% p.a. only.
Well, this is exactly the dividend yield at which ITC is currently trading.
How the stock markets reacted to ITC
ITC shares opened in the day yesterday 230.3 more on BSE 230 on NSE.
Its share price closed at 224.1 (1.8%) on BSE and 224 (down 2%) on NSE.
The stock touched its 52-week high 265.3 and 52-week low 196.9 on 14 October 2021 and 4 May 2021 respectively.
In the last 30 days, the share price of ITC has declined by 5.6%. The company’s share price has risen 4.1% in the past one year.
About ITC
Established in 1910, ITC is India’s largest cigarette and second largest fast-moving consumer goods (FMCG) company, with a 78% market share in cigarettes and staples, biscuits, noodles, snacks, chocolates, dairy and personal care products. presence.
The company is also present in the paperboard, printing and packaging business with revenues 45.5 billion more agribusinesses 80 billion by FY 2021.
The company completed 100 years in 2010 and it employs over 36,500 people in over 60 locations across India and is part of the Forbes 2000 list.
To know more, see ITC Company Fact Sheet.
Disclaimer: This article is for informational purposes only. This is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
Never miss a story! Stay connected and informed with Mint.
download
Our App Now!!
,