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#ITC has divided market opinion like few companies.
I think it is at an inflection point with potential to create massive wealth over this decade and next.
Disclosure: Invested & (obviously) biased
Here's my investment thesis (thread)
I think it is at an inflection point with potential to create massive wealth over this decade and next.
Disclosure: Invested & (obviously) biased
Here's my investment thesis (thread)
ITC’s biggest strength lies in how segments complement each other.
Cigarette cash has been used to fund capex for others.
Agriculture provides raw materials for FMCG and paper & packaging.
Packaging serves FMCG.
IT services are the tech backbone of e-Choupal (agriculture).
Cigarette cash has been used to fund capex for others.
Agriculture provides raw materials for FMCG and paper & packaging.
Packaging serves FMCG.
IT services are the tech backbone of e-Choupal (agriculture).
Cigarettes provide the cash.
FMCG drive the growth.
Agriculture is the strategic competitive advantage.
Paper and packaging ride on consumption.
IT services can add decent value to the group.
Hotels are best forgotten from an investment perspective.
FMCG drive the growth.
Agriculture is the strategic competitive advantage.
Paper and packaging ride on consumption.
IT services can add decent value to the group.
Hotels are best forgotten from an investment perspective.
Cigarettes and Dividends
For the medium term, ITC majorly remains a dividend play with pay-out ratios expected in the range of 80-85%. Cigarettes enable ITC to generate free cash flow in excess of the combined free cash flow of other large FMCG players.
For the medium term, ITC majorly remains a dividend play with pay-out ratios expected in the range of 80-85%. Cigarettes enable ITC to generate free cash flow in excess of the combined free cash flow of other large FMCG players.
Highly unlikely that cigarettes will face a blanket ban. This will only lead to higher illegal trade.
Higher taxes will continue to hinder volumes in the future.
The company is virtually certain to maintain its leadership position with ~80% share in legal market.
Higher taxes will continue to hinder volumes in the future.
The company is virtually certain to maintain its leadership position with ~80% share in legal market.
FMCG Maturity
FMCG will require ~5 yrs to generate sufficient ROCE to self-sustain & grow.
TTM revenue for FMCG stands at ~â‚ą13,800 cr vs ~â‚ą21,600 cr for cigarettes. Assuming 15% growth for FMCG and 5% growth for cigarettes, FMCG will overtake cigarettes in 5 years.
FMCG will require ~5 yrs to generate sufficient ROCE to self-sustain & grow.
TTM revenue for FMCG stands at ~â‚ą13,800 cr vs ~â‚ą21,600 cr for cigarettes. Assuming 15% growth for FMCG and 5% growth for cigarettes, FMCG will overtake cigarettes in 5 years.
With better asset utilization & operational efficiencies, EBIT margins (Q2FY21 at ~7.1%) can be expected to reach ~15% by FY25 and ~20% by FY30.
Even with this, it is nearly impossible for FMCG to surpass cigarettes in profit contribution over the decade.
Even with this, it is nearly impossible for FMCG to surpass cigarettes in profit contribution over the decade.
Organized Agriculture
Strategically, agriculture might be the most important segment.
First, as the foundation of multiple value chains across FMCG.
Second, the opportunity to formalize the highly scattered agriculture market.
Currently, 60:40 external to internal split.
Strategically, agriculture might be the most important segment.
First, as the foundation of multiple value chains across FMCG.
Second, the opportunity to formalize the highly scattered agriculture market.
Currently, 60:40 external to internal split.
E-Choupal has ~6,100 kiosks to serve 4m+ farmers in 35,000 villages in 10 states.
Deeper farmer engagement & expanding value chain can be the competitive advantage in FMCG.
If ITC is able to pull off in agriculture what Amul did in dairy, then it’s a whole another league.
Deeper farmer engagement & expanding value chain can be the competitive advantage in FMCG.
If ITC is able to pull off in agriculture what Amul did in dairy, then it’s a whole another league.
Paper & Packaging
Over previous decade, external to internal split has changed from 60:40 to 70:30. Company is the leader in South Asia.
Capability for 100% recycled & biodegradable products can be crucial due to higher focus on eco-friendliness.
Over previous decade, external to internal split has changed from 60:40 to 70:30. Company is the leader in South Asia.
Capability for 100% recycled & biodegradable products can be crucial due to higher focus on eco-friendliness.
IT Services
IT forms the tech backbone of e-Choupal. Since it cannot compete on scale, partner ecosystem of large players & providing niche offerings are key.
Growth, cash generation & low capex requirements make it a favorable avenue to create value for the group.
IT forms the tech backbone of e-Choupal. Since it cannot compete on scale, partner ecosystem of large players & providing niche offerings are key.
Growth, cash generation & low capex requirements make it a favorable avenue to create value for the group.
Hotels
Despite legacy & luxury, hotels are a drag. Even with new asset-light model (managing rather than owning properties), it might take several years for the segment to become self-sustainable.
Better to enjoy a stay at an ITC hotel rather than thinking as an investment.
Despite legacy & luxury, hotels are a drag. Even with new asset-light model (managing rather than owning properties), it might take several years for the segment to become self-sustainable.
Better to enjoy a stay at an ITC hotel rather than thinking as an investment.
Thanks for reading. Will share a detailed presentation soon. If you found this insightful, please RT & share.
Disclaimer: Neither investment advice nor research. Please perform own diligence before making any decision.
Disclaimer: Neither investment advice nor research. Please perform own diligence before making any decision.
