ITC Chairman Sanjiv Puri.
ITC’s top management discussed taxation on cigarette business, demerger plans and the strategy for the FMCG business going ahead in its first-ever investor meet on December 14, said analysts. The company’s top management stressed that the health ministry makes regular recommendations annually, as it tried to allay concerns about higher taxation on its mainstay cigarettes business.
“We expect a rational decision by the government after considering all aspects and expect any increase in taxation to be well spaced out in any case,” said ITC Chairman Sanjiv Puri, according to analysts attending the event. He also highlighted that the health ministry's recommendation this time is much wider and covers tobacco products other than cigarettes as well.
Investors have been worried about ITC’s performance since the government formed an expert panel to prepare a tax policy on all tobacco products. A decline in cigarette consumption globally has also been concerning investors. However, Puri said sales volumes for cigarettes are already back to pre-pandemic levels. Though there have been significant disruptions in categories like cigarettes since the pandemic's onset, it has now recovered well, said the executive. ITC expects to gain market share due to government's action on illicit cigarettes given the taxation remains stable.
The company’s demerger plans and its strategy for FMCG business were other highlights of the occasion, analysts told Moneycontrol. Puri indicated the company is open to look at a demerger of FMCG business or a separate listing of IT business to unlock further potential. He also talked about the demerger plans of its hotel business and said the company plans an action once the hospitality industry recovers.
FMCG: A key growth lever
During the event, analysts said the company discussed its plans for FMCG business at length. ITC said it is looking for merger and acquisition opportunities, especially, for its FMCG business after seeing a good performance of its recent acquisitions -- Savlon, Nimyle, Sunrise. The company has set a Rs 1 trillion revenue by FY30 for its FMCG business and Puri said the company is committed to building a large FMCG business in the country.
The company also discussed its investment plan, under which it plans to invest Rs 10,000 crore in the next three years to create growth vectors. Of this, 35-40 percent would go towards FMCG capacity expansion, while 25-30 percent towards ITC Paperboards. About 10 percent of the capital would be spent on completing its major hotel projects and the rest of the sum on building digital capabilities.
Under its FMCG plan, Puri outlined, the company will continue to scale and fortify power brands and leverage them to address adjacencies. “We will continue having regionally strong brands and building segments of the future to achieve ambitious FMCG plans,” he said.
ITC also discussed inflation and the stress on its margins due to high input costs during the event. The company’s management said that though it is witnessing unprecedented inflation in edible oil, palm oil, packaging, it has been able to sustain 9 percent EBITDA margins in the first half of FY22.
Other businesses
ITC has witnessed a strong recovery in the hotel business with improvement in consumer sentiment and mobility. Leisure travel, it indicated, is doing well but business travel is still weak and is currently at 40-50 percent of the pre-COVID levels. However, hotel occupancy, ITC said, is already back to pre-pandemic levels and it expects the third quarter to be better than the second quarter for its hotel business.
Giving an outlook for its infotech business, the company said it sees tremendous potential in the IT business, especially, in the current environment.ITC allays concerns about higher tax on cigarettes, discusses demerger plans in first-ever investor meet - Moneycontrol.com
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