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ITC Limited is a leading private-sector Indian conglomerate. From manufacturing and selling fast-moving consumer goods like cigarettes, shampoos and biscuits to operating large hotel chains and providing e-solutions to India’s agricultural sector, the company has become a mainstay in the life of the Indian consumer, and its list of offerings is only increasing. It was also named India’s most admired company as per a survey conducted by Fortune India in partnership with Hay Group in 2014.
The company has 13 businesses in five segments. They are: Fast-Moving Consumer Goods (FMCG), Hotels, Paperboards & Packaging, Agri Business, and Information Technology.
Headquartered in the Indian city of Kolkata, the company’s beginnings can be traced back more than 100 years to 1910, when it was founded as the ‘Imperial Tobacco Company’.
On October 27, 1954, the corporation was turned into a Public Limited Company. The first step towards Indianization happened the same year, with 6% of the company’s Indian shareholding. During this time, ITC also became the first Indian company to venture into consumer research. Subsequently, the company rebranded itself as ‘I.T.C. Limited’ in 1974.
The full stops in the company’s name were eliminated, with effect from September 18, 2001. The company is currently known as ‘ITC Limited’ where ‘ITC’ is no longer an acronym.
Currently, ITC Limited has 200 manufacturing facilities in India and exports its products to 90 countries. Additionally, the company’s products are available in 6 million retail outlets. ITC has been carbon positive for the last 15 years, water positive for 18 years, and solid waste recycling positive for 13 years.
Business model of ITC Limited
ITC Limited’s business model is centred on leveraging its core competencies to drive growth across its various business segments. The company’s FMCG business is its most significant revenue generator, with a presence in multiple categories, including foods, personal care, cigarettes, and lifestyle retailing. The company’s well-known brands, such as Aashirvaad, Sunfeast, Bingo!, Yippee!, and Fiama, have helped it establish a strong foothold in the Indian market. For this segment, the company’s business model focuses on product innovation, robust distribution networks, and strategic marketing to ensure continual growth in this sector.
ITC Limited’s hotel business comprises luxury and upscale properties, with its flagship brand ITC Hotels operating under four distinct sub-brands: ITC Luxury Collection, WelcomHotel, Fortune, and WelcomHeritage. The company’s business model revolves around asset-right strategies, strategic partnerships, and an emphasis on sustainability and responsible luxury. The ‘asset-right’ strategy involves a stronger emphasis on management contracts via refurbished and new brands.
The company’s paperboards and packaging division caters to the needs of various industries, including FMCG, pharmaceuticals, and electronics. To strengthen its position in the worldwide pulp, paper, and paperboard sector, this segment is embracing digital technologies such as IoT, advanced analytics, and image analytics. In this sphere, the company focuses on its operations utilising renewable sources, recycling, and promoting environmental stewardship.
Meanwhile, ITC’s agri-business division focuses on exporting agricultural commodities, creating value-added products, and providing agri-services. The company’s e-Choupal initiative, an internet-based platform, connects farmers with markets and empowers them with information and resources. Along with this, the company’s IT arm, ITC Infotech, offers technology solutions to various industries, including banks, financial services, insurance, manufacturing, retail, and travel.
The Research & Development (R&D) centre of ITC operates under the brand “ITC Life Sciences & Technology Centre” (ITC LTSC). The subsidiary focuses on building intellectual property through experimental research, rapid prototyping and process development. Over 800 patents have been filed by ITC LTSC, as per the company’s official website.
How is the company doing?
ITC Limited’s net profit increased by 21% year on year to Rs 5,031 crore (~$610m) in the Q3 of FY23. The company’s operating margin witnessed an expansion of 31.95% during the same period.
Additionally, ITC’s standalone operating revenue (without excise duty) in Q3 of FY 22 increased by 2.3% year on year to Rs 16,225.7 crore (~$1.97 bn). EBITDA, increased by 22% year over year to Rs 6,223.2 crore (~$755m), while EBITDA margins increased by almost 600 basis points to 38.4%.
Segment-wise, the company’s FMCG-cigarettes revenue increased 16.72% year on year to Rs 7,288 crore (~$884m), while FMCG-others sales increased to Rs 4,841 crore (~$587m). “The FMCG Businesses witnessed strong growth across channels and markets (both urban and rural) driven by ramp-up in outlet coverage, enhanced penetration and superior last mile execution,” ITC Limited stated in its latest quarterly report.
ITC’s hotel revenue increased by 50.48% year on year to Rs 712.4 crore (~$86m), while income from paperboards, paper, and packaging increased by 12.65% year on year. Meanwhile, the sales in the company’s agribusiness fell 37% year on year in Q3 of FY23 to Rs 3124 crore (~$379m).
ITC Limited has been included in the Dow Jones Sustainability Emerging Markets Index in Q3 of FY 23 due to the company’s continued contributions to sustainable development. The company also retained its ‘AA’ rating by MSCI-ESG for the 5th successive year. “The Board of Directors declared Interim Dividend of Rs 6 per Ordinary Share of Rs 1 (~$0.012) each for the financial year ending on 31st March 2023,” stated ITC in its quarterly report.
Stock movement of ITC Limited
Listed on the Bombay Stock Exchange (BOM: 500875) and the National Stock Exchange of India (NSE: ITC), ITC has a market capitalization of $6.45 bn. The company’s stock has risen over 45% in the past year, as of April 11, 2023. It has a PE ratio of 26.71, and a forward PE ratio of 23.58. The company has a price-to-book ratio of 7.33. Since May 2021, the stock has risen over 94%, hitting an all-time high on April 1, 2023.
“ITC’s share price has underperformed FMCG index with mere 10% return (from Rs 281 in August 2017 to 308 in August 2022…We remain positive on growth prospects. We maintain our BUY recommendation with a revised target price on stock to Rs 360/share (earlier Rs 310 /share),” said the online share trading platform ICICIdirect.com.
What’s next for ITC Limited?
As ITC Limited looks forward to 2023 and beyond, it is expected to continue leveraging its diverse portfolio to tap into emerging opportunities. In the FMCG segment, ITC aims to strengthen its business by expanding its product portfolio and entering new categories. This year, the company has placed its bet on millets, claiming that the nutritious food grain has the potential to open new market opportunities worth Rs 4 lakh crore (~$48 bn).
“ITC is actively making ‘ITC Mission Millets’ a priority to serve national priority utilising our enterprise strengths in agriculture as well as the synergy of our businesses in foods and hospitality,” Sanjiv Puri, Chairman & Managing Director of ITC Limited told an Indian media outlet in January 2023. In 2022, Puri had projected that the company’s FMCG segment would be worth Rs 5,00,000 crore by (~$60.94 bn) 2030.
Furthermore, ITC plans to expand its hotel portfolio by exploring new markets and forging strategic alliances. In an effort to increase its presence in South India, the company announced in November 2022 that it has teamed with Jolle Hospitality to build a 116-room hotel in Belagavi in the Indian state of Karnataka. The hotel, which will span more than 5 acres, is now being built and should be finished by 2024. According to an announcement, it will be called ITC WelcomHotel Belagavi.
Additionally, ITC is looking to harness digital technology across its businesses to improve efficiencies, drive innovation, and enhance customer experiences. Looking forward, initiatives such as the ‘Young Digital Innovators Lab’ and ‘DigiNext’ launched by the company aim to establish a data-driven and digital-first culture across the organization.
Also, ITC will continue to invest in initiatives such as e-Choupal and integrated watershed development to empower rural communities. The company, in 2022, launched the ‘ITC MAARS’ app, which provides farmers with a wide range of agricultural solutions while providing better marketplaces for modern agriculture and rural services. in the future, the app is expected to aid around 10 million farmers across the country up from 4 million currently.
Despite an expanding footprint of activities, ITC claims that renewable energy sources meet approximately 42% of its total energy demand. As per the company, recent investments in the high-pressure recovery boiler and solar farms will also help ITC meet its Sustainability 2.0 goals of obtaining 50% of total energy use and 100% of electricity requirements from renewable sources by 2030.
