ITC: Well placed for long-term growth

13 Dec 2023 , 10:31 AM

Recommendation: Buy; Target Price: Rs 490

In its analyst meet, ITC’s senior management articulated its growth strategy across business segments. ITC is focussed on growing the non-cigarette FMCG portfolio via premiumisation and portfolio expansion while increasing profit margin steadily. In the cigarette business, the focus is on increasing cigarette share of tobacco consumption, and consolidating market share in the context of reasonable tax regime. The company also highlighted its digital capabilities. Analysts of IIFL Capital Services expect robust, diversified growth to continue. Maintain BUY, TP Rs490. 

Premiumising FMCG portfolio: 

ITC has built a large FMCG portfolio with core brands in foods and personal care; has a total reach of 7mn outlets. Growth drivers, as articulated by the company, are in strengthening the core business, tapping into value added adjacencies, premiumisation of portfolio and driving category penetration. As of now, the personal care portfolio is largely subscale and with differentiated value-added propositions being added to the portfolio, there is a strong headroom for growth. 

Well placed in cigarettes: 

Legal cigarettes account for 9% of tobacco consumed in India. Illicit cigarette trade is ~1/3rd of the legal cigarette trade. With tax rates stabilising, the legal cigarette business is recovering and volumes are expected to come back to FY2013 levels. ITC has built a strong distribution channel with 0.64m outlets being serviced daily, and a portfolio covering the entire price ladder. New product launches contribute 17% to the division’s volumes, giving it an edge over competition. 

Tapping the food-tech opportunity: 

ITC has entered into the foodtech space with premium brands “Sunfeast baked creations”, “ITC Master Chef Creations” and “Aashirwaad Soul Creations”. Currently, it has 19 Cloud kitchens and 57 brand outlets and is operational in Bangalore and Chennai. ITC is focussed on geographic expansion and channel expansions to leverage the large potential in the food-tech space.