Cigarettes-to-hotels major ITC Ltd is diversifying its tobacco business as it gets into the manufacture and export of nicotine and nicotine derivatives (like nicotine salts) to the European Union and the US markets.

The company has invested ₹50 crore, as on March 31, 2021, and set up a wholly-owned subsidiary, ITC IndiVision Ltd (IIVL), which has obtained the necessary regulatory approvals for setting up a facility near Mysuru in Karnataka. It will have indigenous machinery.

“Steady progress was made during the year in project construction activities while ensuring adherence to the highest standards of hygiene and safety protocols,” ITC said in its annual report 2021.

The Mysuru facility will manufacture nicotine and nicotine salts primarily for exports as it looks to tap into the growing demand for nicotine-based oral and vaping products.

Also read: ITC posts consolidated net profit of ₹3,817 cr in Q4

The nicotine-based end-user product market is pegged at $5 billion globally, according to industry estimates.

Sources say the company aims to manufacture “purest nicotine” while conforming to stringent US and EU Pharmacopoeia standards “which define the purity levels at 99.2 per cent for nicotine meant for pharmaceutical products”.

ITC will leverage the institutional capabilities of its leaf tobacco business.

Hotel business

The company plans to introduce a boutique hotel brand ‘Storii’ that will offer curated travel experiences; while a large part of incremental room additions in the business are likely to be through management contracts.

In FY21, the vertical saw a YoY revenue degrowth of 66 per cent at ₹627.51 crore. However, it turned EBIDTA positive in the H2FY21 following interventions like augmentation of revenue streams, customised packages and cost reduction programmes.

“While new signings or openings were adversely impacted, the business is confident of bouncing back as the situation normalises. The second wave has triggered a fresh round of mobility and travel restrictions leading to severe disruptions. The near-term outlook (hospitality industry) will depend largely on the return of confidence in business and leisure travel,” it said, adding that the company “will continue to examine alternate structures in line with industry recovery dynamics”.

Non-cigarette FMCG business

ITC’s FMCG businesses recorded segment revenue of ₹14,728.21 crore, a 14.7 per cent increase YoY. Segment EBITDA grew 44.1 per cent to ₹1,316.82 crore with margin expansion of 180 bps.

“Growth in the first half of the year was driven by surge in demand for staples and convenience foods and hygiene products; sequential recovery in demand in the discretionary / out-of-home categories such as snacks, juices, confectionery, bodywash and fragrances reflected in the second half performance,” the company said.

ITC said its portfolio of over 25 brands had an aggregate annual consumer spend of ₹22,000 crore with a reach in 150 million homes.

Brand extensions continue to be explored. Some include Aashirvaad's extension to dairy, ready meals, salt and spices; Sunfeast to dairy beverages and cakes; Bingo to namkeens ; Savlon to surface & clothes disinfectant sprays, sanitizers, masks, among others. Savlon had nearly ₹1,200 crore of consumer spends last year.

“Simultaneously, the FMCG businesses continue to make strategic investments in building the new core by scaling up nascent categories such as dairy, beverages, chocolates, coffee, homecare and skincare,” it said. The company has also ramped up its B2C offering, the ‘ITC e-store’, to reach 11 cities.

On the outlook, ITC said, severity of the second wave of Covid-19 infections “pose a key challenge”. Consumers are adopting a “precautionary savings approach” with resources being set aside for medical needs. “The spread of the virus to rural areas on a relatively higher scale as compared to the first wave is also expected to weigh on industry growth outlook,” the report said.

E-Choupal 4.0

The diversified conglomerate is implementing its e-Choupal 4.0 and the phygital’ system (mix of physical and digital arrangements) is designed as a crop agnostic solution that aggregates remote sensing, precision farming, drone-based services, quality assaying and e-marketplace. It strengthens agricultural entrepreneurship and agri-tech start-ups through a “services aggregator model” that empowers farmers with “next generation agricultural practices”.

Specific interventions include support services such as weather forecasts; inputs like seeds, nutrients and crop protection; financial services such as credit & insurance; custom hiring of farm equipment; full service like spraying; farm produce selling and many others.

A case study carried out in Andhra Pradesh — with 4,000 chilli pepper farmers across 12,000 hectares — showed a 13 per cent productivity improvement and a 27 per cent rise in net returns per acre.