The acquisition of spice manufacturer Sunrise Foods is yet another instance of ITC’s thrust on growing its non-cigarette FMCG (called FMCG-Others) business.

While the deal valuation or the financials of Sunrise have not been disclosed by the company, market estimates available in the public domain place Sunrise’s FY19 revenues at ₹600-1,000 crore, and the deal size at ₹2,000-2,500 crore. That works out to a deal size 2-4 times the revenues.

There are no directly comparable deals. The valuation of ITC’s other buys in the FMCG-Others space over the last few years is not public knowledge. The acquisition by Zydus Wellness of Heinz brands such as Complan, Glucon-D, Nycil and Sampriti in October 2018 was valued at four times the revenues of these brands. Hindustan Unilever’s acquisition of GSK Consumer Healthcare in December 2018 was at 7.5 times the latter’s revenues for FY18.

FMCG thrust

The cigarettes business still remains ITC’s cash cow, bringing in 40-45 per cent of the total revenues and almost 80 per cent of the profits. Yet, higher regulatory pressures on this segment have forced ITC to focus on the non-cigarette business over the past few years. The shift was very clear when, at the company’s AGM in July 2015, then Chairman YC Deveshwar declared his ambition of making ITC’s non-cigarette FMCG segment a ₹1-lakh-crore business by 2030.

Towards this, in the last few years, the company has acquired brands such as Savlon, Shower to Shower and Charmis in the personal care space, Nimyle in the home care segment as well as B Natural juices in the foods segment.

ITC entered the FMCG-Others segment in 2001-02, with the launch of ready-to-eat foods under the brand ‘Kitchens of India’. Today, the segment is the second largest for the company in terms of revenues, ahead of hotels, agri-business and paper & packaging.

For the year ended March 2019, this segment brought in revenues of ₹12,500 crore, accounting for a quarter of the company’s revenues. In the nine months ended December 2019, it clocked revenues of ₹9,661 crore. Despite the advantage of having the distribution network of cigarettes to push FMCG products, backward integration for raw materials such as wheat, potatoes and milk (through its agri business), as well as deep pockets to spend on advertising, the FMCG-Others segment turned the corner only in FY14, more than 10 years since it came into being. For the year ended March 2019, the division clocked profits of ₹315 crore (₹276 crore for the nine months ended December 2019).

Complements foods portfolio

Under FMCG-Others, ITC has a presence in segments such as foods, personal care, stationery, matches & incense sticks and lifestyle. The Sunrise Foods buyout complements ITC’s food portfolio, which consists of brands such as Aashirwaad, Sunfest, Bingo! YiPPe!, B Natural and Fabelle.

ITC has already been marketing spices under its Aashirvaad brand since 2005. But the offerings currently consist of a limited portfolio such as chilli, turmeric, coriander, cumin, garam masala and koora karam powder in select markets in South, East and North India. Sunrise, on the other hand, has a more comprehensive portfolio comprising whole, ground and blended spices, apart from mustard oil, papad, hing and instant mixes. Sunrise also has a big presence in the East, covering the north-eastern States as well as Bihar, Odisha, Jharkhand and West Bengal.

Considering the ₹1-lakh-crore target, ITC could continue to expand its offerings through inorganic growth. Being a relatively late entrant in a market entrenched with MNCs on the one hand and strong local brands on the other, it is still a challenge for the company.

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