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ITC has Dominated FMCG Industry for Decades; Has the company overcome the hurdles of low stock performance?

The transformation of ITC under Sanjiv Puri has remarkably stated one of the glorious times across Indian businesses. Initially, when he inherited the responsibilities as the Managing Director from Y.C Deveshwar, his vision was a stalemate in defining ITC as the consumer-centric conglomerate.

The path to glory had abrogated several challenges and hurdles, including the low-conceded stock performance due to its cigarette avenue. Diversification of resources became the ultimate goal, and ITC’s heavy reliance on cigarettes deeply hurt the long-standing revenues of the company. The scenario was remnant even under Deveshwar’s tenure, and a remodelled perspective urged within the hush.

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How the Conviction of Inaugurating ITC Came to Mind?

In the gleaming autumn of 1910, sitting confidingly in his snapped office residing in Calcutta, the expatriate manager wouldn’t have had the instinctual imagination to note what’s the history had in store for the company; about to get inaugurated. Over a decade has passed by, and we are relishing ITC’s journey to success.

It is staggering to know that what incepted as the outpost of the overseas-owned company has now ballooned into India’s multi-dimensional and valued businesses. Astonishingly, till now, there are a handful of companies lodged a perpetual 100-year long sustainable journey, alongside remain relevant, interactive and delivered to the occasion. ITC has relished every manifesto of the pipedream.

The company had inaugurated with a modest topline, subsequently growing to 145 crores in 1970. Since then, ITC has espoused a breakthrough in its diversified product categories. No one could have ever envisioned the reverence that ITC has perceived accomplishing a span of 20 categories till 2014.

More than 150 factories churn out ITC’s products in today’s scenario compared to the appalling situation 50 years ago where only six units were established. ITC has lived a long way in achieving the expectations and has now represented its presence across the predominant sectors of the industry; agriculture, services and manufacturing.

What has conceptualised ITC’s Consumer-centric approach?

Its no question that without the visionary ambition of CEOs, ITC’s commendable revolution wouldn’t have taken place. The influential directors carrying out ITC at different points of its history had a common objective of serving the conglomerate as an institution.

The envisionment progressed on the notions of upgrading national value alongside heightening the stakeholders’ value. It was critical to focus on both objectives to bring societal change across businesses. The vision of individual CEO’s has collaborated and vegetated into a redefining model of aspiration for more than 31,000 employees working under the ITC group.

The triggers of augmenting its foray in the hotel businesses were prospered by maximising the potential of attaining foreign direct investment. The expansion of its dimensional businesses did not cease here, as it grasped the sights of the backward regions in Andhra Pradesh and massively contributed to its economic turnaround.

The proactive approach advent leads to ITC’s entry into the paper and paperboard businesses. It diversified its business to intensify its supply rationale. Alongside, building a fragmentation of consumer-centric products, which got bolstered by the thinking strategies advised by the managers.

Let’s dwell into ITC’s Modulation of A New Era Under Puri:

In 2019, the embodiments of a new era of ITCs diversified business was built when Sanjeev Puri took charge. The growth has substantially increased for the last couple of years as the company recorded its highest profits in FY21 in its non-cigarettes segment. Despite the manifestation of the pandemic, ITC’s revenue grew 3.3 per cent following the business’s retraction. However, on the profit after tax prospect, the company has slightly drifted apart from its evaluations.

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Even though the company has aspired to the FMCG’s industry, it has lagged to replicate the efficiency in its stock performance. Why such a scenario dispensed notwithstanding ITC’s pride exhilarated worldwide? Seemingly, the company has miserably failed to catch the eyes of investors in recent times. A senior stock market analyst has claimed that the primary concern for EBIT is its proportion coming from cigarettes, higher than 80-85 per cent.

The dependence on such products affects other multiples, and FII has declined by 13-15 per cent over the past years. The predicament could get solved if the ratio of cigarettes in EBT is decreased from 80 to 60 per cent, which seems to be an uphill task. Investors are halving their interests in funding tobacco products contemplating their nature of abiding by the global environment, social and governance norms. It is becoming a stressful period for FMCGs companies like ITC, whose apprehension is ever-increasing.

Sanjiv Puri has made unprecedented changes, which has recouped the FMCG business into the largest in profits. It cuts slack in the ESG Sector, and it needs to get resolved rampantly. The other concerning spotlight has been the hotel business. Over the past year, the tourism industry suffered ultimate bearings as the hotels were not permitted to operate during the pandemic. It has imposed some big shrinking numbers as much as 65.8 per cent fall out for the conglomerate. Despite being the best suite in class, ITC’s hotels are a riskier apprehending investment for the shareholders due to the business sticking to macro factors.

Unlatching Maximum Potential

Puri contradicted the study of analysts regarding de-mergers. While economists believe that ITC can unlatch maximum value for its business on the stock markets through demerges of its diversified FMCG sectors, the Managing director restrained a non-committal approach to the issue.

Offering value to the stakeholders can only be rolled out through distinctive listed entities for cigarettes, paper, hotels, FMCG and agri-business. However, suppose they tinker with the whereabouts of FMCG and cigarettes. In that case, it may involve substantial operational costs for ITC, and indeed it would be challenging to adjust amidst the economic slowdown.

Puri has banished the idea by asserting that demerges will only entice a short-term excitement and not an elongated growth path. He further stressed the hotel businesses and claiming it to be a haunting and alarming burden on the balance sheet. The demand destruction has instituted turmoil, and ITC is revamping its structure in line with the industrial recovery plan. The recognition of stakeholders should be on the superiority list of the enterprise as it helps in sustaining the downfall period arising at any particular point.

Has the Consumer Bandwagon Lived up to the Expectations?

itc's fmcg outlook is promising, but market isn't biting into it yet

ITC has shifted its focus on a consumer-centric approach but has it emulsified as a pack leader is a trending question. The company has set its foresight on expanding value creation in its FMCG business, but the industry isn’t banzai. ITC hasn’t hit the benchmark on the market share and profitability areas apart from a few scaling escalations in snacks and few other categories. A former FMCG CEO has expressed his concerns over the lack of clarity in the company’s vision as they are running through the sack in several segments.

ITC’s operative margins have resided to 6 per cent in its non-cigarette avenues, while HUL’s exhalation is around 22 per cent. The revenues have upheaved in FY21, and ITC has emerged as the star performer. It doesn’t wander away from the fact that the sudden rise in Savlon’s stocks has been Covid-centric and couldn’t be sustained in the longer run. ITC is trying to vanish the perturbation by morphing into diversified customer products relish on unfolding value and excessive volume growth.

Tanish Sachdev

Tanish seeks new opportunities as a professional content writer and writes on several fundamental topics like businesses and economics. The focal point remains on expressing opinions on critical aspects concerning the economy.

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