ITC Analyst Meet Highlights: Dolat Capital

Dolat Capital Report

Cigarette Business

In India, per capital consumption of cigarettes is one of the lowest in the world. The legal cigarette accounts for mere 9% of total tobacco consumption in India, which translates to ~80% of tax revenue. Other forms of tobacco including bidis, smokeless and illicit cigarettes account for 1/3rd of legal cigarettes.

Illicit cigarette remains a significant challenge for the company. The cigarette industry in India had witnessed sharp increase in tax incidence from 2013-20, as a result of which volume saw a drop of ~20%.

However, since FY22 onwards as the taxes remained relatively stable, which lead to in claw back of illicit trade. Going ahead, the focus remains on maximizing cigarette potential within the tobacco basket, reinforcing market standing and towards portfolio intervention in differentiated formats to counter illicit.

Increased Share of Non-Cigarette Business

Over the years, ITC has diversified from traditional business of cigarettes to non-cigarettes (fmcg, agri, paper and hotels) to drive profitable and capital efficient growth. Through which over last 10 years, the non-cigarette business has witnessed revenue/profit before tax growth of 2.5/3.2 times and the return on capital employed has improved by ~730 bps over the same period.

FMCG – Foods Business

As per Nielsen, ITC is India’s fastest growing food company with Sunfeast and Bingo amongst top 10 brands. The company launched 300 products over last three years. Moreover, it has grown to three times of their revenues in past 10 years.

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