ITCs Institutional Investors and Financial Analysts Day Key Q&A Highlights

ITC Limited the Hotel to FMCG Conglomerate held its first Investor Meet on December 14, 2021, in order to become more investor friendy and catch up with best practices. This meet was not so fruitful in terms of expectations of some major announcements, mergers, and acquisitions, de-merger, listing, or any other expected outcome, but the company has given some guidance, its steps towards the different segment, and many more insights. Know more about what did the company management discussed in the Analyst Meet, do read these detailed highlights.

Cigarette Business:

i) Regarding the Company’s perspective on expert panel constituted by the Ministry of Health and growth:

• Recommendation on taxation by the ministry to the government is a regular event.
• Also, specifically, the recent recommendation is not purely against Cigarette Business, but it covers the whole Tobacco products.
• Taxation is a serious concern and the company expects a reasonable perspective from the government side keeping in mind the concerns of various stakeholders related to the tobacco business.
• GST Compensation Cess is meant to be till 2022 to compensate states, and beyond 2022 it requires a constitutional amendment.
• Also, there could be a modification of the act to extend the levy of the compensation tax to pay for interest and loans that have been taken on account of the revenue shortfalls during a pandemic, but the company expects here the modification due date can extend for further years.
• A cigarette is just 8% of total tobacco consumption where there is some interplay between illicit and legal cigarettes, and also other forms of tobacco products.
• The company expects that the cigarette industry can claw back particularly from the illicit cigarettes business leading to revenue as well as volume growth.

ii) Growth View of Cigarette Business:

• Cigarette business recovery has been robust after cooling off of Covid-19 cases in the country.
• Mobility factor has impacted some disruption to the business during a pandemic, but the company is getting back to the pre-covid level as fast as the economy is opening up.
• Imperatives for the company for Cigarette Business:

• To maximize the potential of cigarette category within the tobacco consumption basket.
• To fortify market standing.
• To counter illegal business in this segment.

• Levers for Value Capturing:

• Pricing Mix
• Volume Mix

• In times of tax stability, the company takes on the combination of Pricing Mix and Volume Mix especially to counter illicit industry, ramping up innovation in the product portfolio, and premiumization of products.

iii) How does the company view the instance of the ban on e-cigarettes and e-vaping:

• WHO has not received any adequate evidence of the harmful of these electronic cigarettes.
• Also, India is not the only country to ban these types of cigarettes, other country has also banned them.
• The reason behind the banning of e-cigarettes in India was on account of the usage of these as a gateway product.
• The company is uncertain about its future, but the company is equipped to play in this category if the bans are lifted.

FMCG-Others:

i) Company’s measures to mitigate cost-pressure:

• The FMCG industry, as well as the company, is witnessing unprecedented inflation in input commodities like edible oils, craft paper, palm oil, etc., but the company has effectively been able to mitigate this inflation impact.
• In H1FY22, the FMCG EBTIDA Margins stood at around 9% despite inflationary pressure on the grounds of actively looking care up of every element of the Profit and Loss Statement of the company.
• The company has also taken judicious pricing actions to offset the inflation impact.

ii) How is the company planning to scale up new categories of product portfolio and views on product portfolio which is low-scale?

• ITC aspires to build a scalable FMCG business at a fast pace.
• The company will scale and fortify the power brands of the company which is Aashirvaad, Yippee, Bingo, etc.
• Moreover, the company will use the strength of these brands to address adjacencies. For example, Aashirvaad will be straddled towards certain additional areas like Vermicelli, Organic Pulses, Ready-to-eat meals, etc.
• These adjacencies are not necessarily Pan-India, but they could also be regional-focused depending on the market opportunity.
• Besides these power brands, the company is also building future product portfolios via low-scale brands like ITC Master Chefs, B Natural, Sunbeam Coffee, etc. The company is actively establishing these brands and hence initiated a piloting project.

iii) FMCG Margins- Future Scenario:

• ITCs FMCG Business EBITDA Margin is slightly lower than the other FMCG Players in the industry due to the company’s actions toward building the engine for growth as some of the company’s brands are mature, some are emerging, and some are nascent.
• The company is confident to maintain the margin trajectory but has not provided exact guidance.
• The company looks at absolute EBITDA also growing substantially in the next 2-3 years.

iv) How does the company report increase in market share in Biscuit and Hygiene Care Categories:

• Not only Biscuits and Hygiene Care Products, but other categories like Noodle Categories, Ready-to-Cook, Ready-to-Eat, also reported a surge in demand.
• From a distribution viewpoint, the company will opt for every mode whether it is Traditional mode or Digital Mode.
• The company also said that it will continue to invest in e-commerce at an aggregate level. In the Personal Care business, it stands at around 70%, while it is in double digits in some of the businesses.
• The D2C progress pace got accelerated during the pandemic period due to rising digital activity. In this space, the company launched direct D2C platforms ITC E-Store.
• The company also ramping up D2C plans in Agri-business as well via ITC Mars.
• The company will be investing in employees to strengthen e-commerce channel.
• In the staples category, Aashirvaad will only get into value-added adjacencies that are the value of creativity.
• The overall trajectory of margins in the power brands has improved quite substantially over the last 3-4 years i.e., about 640 bps from FY17.
• In the Classmate business, the debtor component is higher as because it is a credit business.
• The target of Rs. 1,000 Cr. in the FMCG business by 2030 remains intact

v) Amount to be obtained by the company under PLI Scheme:

• ITC has been selected under the PLI Scheme in the following categories: Ready-to-Eat, Fruits and Vegetables, and Marine. The first 2 are relative of big amount, and the last one is small.
• ITC will be one of the largest players committing to incremental investments on the PLI Scheme.

Hotels:

• Hotel Business is posting a smarter recovery post the second wave of Covid-19 in the country.
• With the speedy vaccination, reducing Covid-19 cases, and increasing normalcy, the company expects a sound business in the coming quarter including quarter one.

Infotech Business:

• The company sees tremendous potential in IT Segment.
• ITC Infotech is a 100% wholly-owned subsidiary of ITC Limited, and there is a possibility of listing this business where the company is evaluating and examining all factors. The listing will be done at the right time.

Cash Usage/Structuring and De-Merger Plans of FMCG Segment:

• The strategy of FMCG business is to leverage institutional strength.
• The firm is open to structuring the Hotel business but will be done once the industry recovery completes.
• The company is committed to looking and evaluating all the available factors for value unlocking opportunities.
• In FY17, the company announced Asset-Right Strategy, which is now building up.
• The CAPEX plans of the company from a 3-Years perspective will be around Rs. 3,000 Cr. per annum which will amount to around Rs. 10,000 Cr. over the next 3-Years.
• Large Portion i.e., 35%-40% of CAPEX will be deployed in the FMCG segment for largely creating new capacity. Next to FMCG business, the major cash allocation would be towards Paperboards business, as it is a capacity-led business by nature wise, and here 20%-25% CAPEX will be done of Total CAPEX.
• Hotel Business will be taking a share of 10% or less from the Total CAPEX plan. There will also be CAPEX in Agri-Business to augment the digital growth present in that segment.
• Merger & Acquisition (M&A) will always be on the cards of the company to grow inorganically. Segment-wise the company is having great interest in M&A opportunities in the FMCG space.
• In the last 18-20 months, the company is more focused on earning growth momentum and maintaining threshold Dividend Per Share (DPS).