ITC to take inorganic route to grow non-cigarette business

Diversified conglomerate ITC Ltd is exploring inorganic opportunities to grow its non-cigarette FMCG business. The company, which has primarily focussed on organic route for growing the segment so far, plans to bring in inorganic as a “significant vector of growth” moving forward.

According to Sanjiv Puri, Chairman, ITC, bulk of what the company has built in the FMCG segment has been done organically. The company’s topline in non-cigarette business has gone up by 20X over the last two decades. However, the bottomline has lagged at 18X essentially because a large component of the growth comes from the newer FMCG businesses which are being built.

Also read: ITC analysts meet: is demerger on the table?

“We are recognising inorganic. Bulk of what we have done is built organically so now we want to bring in inorganic as a significant vector of growth given that we understand this space with our experience for over two decades,” Puri said at the company’s first analyst meet on Tuesday.

Ever since the company announced its first-ever analyst meet, the market has been rife with buzz of a possible demerger of its non-cigarette FMCG business and hotels businesses.

Potential areas

According to Abneesh Roy, Executive Vice-President, Edelweiss Research, the company reiterated evaluation of hotel business structure as said in FY20 and said that it continues to look into it. It also identified Infotech as an area of strong potential and said that it was open to M&A in the segment.

According to Puri, the company and its board periodically reviews all options of demerger, listing and unlocking value of businesses and the final decision would be taken if it creates sustained value for shareholders. “Nothing is cast in stone. Decisions to unlock depend on the business maturity and business context,” he said.

The company’s scrip closed at ₹228.30, down by 2.73 per cent on the BSE on Tuesday.

Talking about the potential of growing the FMCG business, he said the country’s demographics are favourable and the expected growth in GDP would create huge headroom to grow consumption. The array of reforms by government will only push the growth further.

“In FMCG particularly, the per capita consumption and penetration is significantly lower so it depicts the kind of potential that exists,” he said.

The company has identified seven key areas with respect to FMCG sector including revitalising the portfolio and managing it actively; recognising inorganic opportunities; accelerating exports by actively exploring possibilities in proximal markets and exploring and developing newer roads to (access) markets on the distribution front among others.

ITC, Puri said, would continue to fortify power brands and use it to develop adjacencies in more value added areas.

Capex plan

ITC has estimated capex of ₹3,000 crore per annum and nearly 35-45 per cent will go into FMCG to put up more lines and improve capabilities.

The company is also working on cost management and looking at it end to end. “The entire value chain is being looked at with rigour to take out cost from each element by either removing, reducing or re-engineering it,” he said.

ITC has maintained 9 per cent EBITDA by cost cuts, using more efficient marketing, shortening distance to market and calibrated price increase.

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