ITC Limited Unravelling the path to become a "Complete Food Solution Company" - Centrum Broking
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ITC Limited
Unravelling the path to become a
“Complete Food Solution Company”
The Consumer Team
Shirish Pardeshi Shubham Aggarwal
Analyst, Consumer Staples and Discretionary Asso., Consumer Staples and Discretionary
+91 22 4215 9634 +91 22 4215 9771
shirish.pardeshi@centrum.co.in shubham.aggarwal@centrum.co.in
1
Thesis Summary
We initiate our second ‘Lionheart Series’ stock as ITC. Our first initiation Aurobindo pharma(link) continues to outperform not only
nifty but also pharma index delivering 64% returns since initiation. We see similar story in ITC ie. huge underperformance and high
disbelief on the street regarding its food business. It has all the right ingredients for our ‘Lionheart series’ i.e. cigarette business with
high moat being the cash-cow, high FCF, yet high disbelief about its diversification and huge valuation discount to its peers. This
prompted us to do a deep dive into its food business, the ‘make or break’ story.
In our deep dive analysis into ITC’s foods business we conclude that it is at the cusp of a take-off both in terms of top-line and
margins. We expect the other FMCG revenue/EBITDA CAGR of 11.7%/34.0% over FY20-23E with EBITDA growing by over 70% to
12.3% by FY23E and stock price to deliver 93% from CMP (Rs.182) in a 2yr holding period. Our arguments are as follows:
ITC is emerging as a foods company (more comparable to Nestle than HUL): Branded packed food consistently gaining saliency
given the management focus (saliency increased from 71% of other FMCG in FY14 to 81% in FY20)
It is the only company which has successful brands from staples (Aashirvaad) to RTC and RTE (Sunfeast, bingo, Yippee etc.): ITC
has made consistent investments in brand building over the past decade helping create brands across the branded packed food
categories from staples a and dairy to RTC and RTE. Aashirvaad/ Sunfeast/ Bingo/ Yippee now account for
Rs.60bn/40bn/27bn/13bn in consumer spend terms.
Going ahead foods division will drive both its top-line and bottom-line: Food business has enough arrows in its quiver ranging
from industry growth, brand maturity to efficiency gains etc. that will help other FMCG segment to drive revenue/EBITDA CAGR
of 11.7%/34.0% over FY20-23E.
Cigarettes continue to remain the cash-cow with strong moat: ITC’s cigarette business enables the company to have a consistent
cash flow (FY20 OCF/FCF is Rs.138bn/116bn) powering ITC’s food business to chew a mouthful of initiatives with 6 of 11 brands
still in incubation.
The new management has guided for halt in capex in hotels (low ROE business): Management has taken cognizance of the
declining ROE and has taken steps such as shifting to an asset light model for Hotels and increasing dividend pay-out to 80-85%
to drive capital efficiency. We expect company’s ROE to increase from 25% in FY20 to 26.3% in FY23E.
Overall company ticks all the boxes ✓ strong cash flows (FY17-20 FCF CAGR 18%, FY20 FCF Rs.116bn) ✓ good management ✓
high dividend yield (5.6%) and ✓ strong business moat, that gives us the confidence to call it a high conviction buy.
2Section 1
Consistent scale up of FMCG business & profitability to drive rerating
3ITC present across the FMCG space with focus on foods category
F&B to lead Growth in Consumption ITC’s positioning itself to ride the wave
Beverage Processed Staples 1,322 CAGR
Foods Dairy 79 6% 10%
Personal Care & Health Home Care
239 17%
(‘000) crores) 11%
284 22% 15%
F&B CAGR: 15%
216 17% 13%
478
37 8%
107 22% 274 21% 17%
F&B:
95 20% 1,005
F&B: 83 17%
334 77 16% 231 18% 16%
78 16%
2017 2025
Large Addressable Market: Organized F&B to Grow 3x by 2025
Source: Industry, Company, Centrum Broking 4ITC Banking on large opportunity within packaged foods
Premium
Mid
Market
Market Size
Possible Key Industry Expected CAGR
Share
Mass Extensions Competition Growth est. FY20- FY23E
Pickle, Grain Shakti Bhog,
35% Rs150bn Silver coin,
Semolina, Gram
Flour, Grains- Nature’s fresh, 9%-10% 8.5%
Atta, Ghee, Salt, Wheat Flour Fortune, Samrat
Spices, dairy,
Instant Mixes
10% Rs500bn Britannia, Parle,
Rusk, Bread, Priya Gold, 6%-7% 13.3%
Wafers, Anmol, Dukes,
Breakfast foods UNIBIC, Anmol,
Biscuit, Cookies,
McVities
Rusk Cakes
13% Rs250bn Lays, Balaji,
Traditional Diamond, 15%+ 12.7%
Extruded snacks, Namkeens Haldiram, Too
Potato chips, Yums, Britannia,
Baked snacks Parle
23% Rs55bn
Oats, Breakfast Maggi, Waiwai,
cereals 20%+ 12.5%
Top Ramen
Noodles, Pasta
Source: Industry, Company, Centrum Broking 5Management blueprint suggest focus on food
Revenue Contribution
2014 2017 2020 2023E
25% 27% 28% 30%
Branded
Packed 71.0 76.5 80.8 82.8
Food
Others 29.0 23.5 19.2 17.2
Other-FMCG business to contribute 30% revenue in FY23 driven by rising share of food
Source: Company, Centrum Broking 6FMCG Margin Drivers
Optimizing ad-spends as Brands Mature
Rising Gross Margin and Improving Product Mix
Capacity Utilization/ Operating leverage
7ITC’s foods business is relatively young
Incubation Growth Maturity
Profitable
Break
Even
Loss
Making
0-5 >5 & 10
Years since launch
6 of 11 foods brands still in incubation stage: Expect 3 more brands to approach growth stage by FY23E
Source: Company, Centrum Broking 8Bingo’s ad-spends to sales ratio has reduced by ~400bps over 5 years
Example Snacks: Media Spends
Rs. Million FY-14 FY-15 FY-16 FY-17 FY-18 FY-19
ACT II 71 130 127 125 80 34
Lays 639 526 326 148 374 252
Kurkure 498 571 503 202 259 405
Doritos 128 150
Cheetos 46
Bingo 666 688 636 684 804 814
Crax 6 44 54 48 54 106
Yellow D 0 65 134 248 146 256
ITC has been spending heavily on
Mexitos 25 60 0 0
brand building. Its Media spends
Cornitos 0 0 0 10 1 0
are higher than market leader
Too Yumm 137 460
Pepsico’s brand Lays.
Balaji 21
Others Tot 159 161 240 420 947 614
Category Total 2039 2185 2045 1945 3089 3157
Est. Sales of Bingo 6400 7400 8300 9650 10600 12300
Media Spend (% of Sales) 10.4% 9.3% 7.7% 7.1% 7.6% 6.6%
As the brands scale up, advertising spends will start getting justified
Bingo’s media spends have come down from 10.4% of sales in FY14 to 6.6% of sales in FY19
Source: Industry, Centrum Broking 9Maturing brands lead to decline in advertising spends to sales %
FY20 FY23E
Overall ASP (Rs.Mn) Overall ASP (Rs.Mn)
9,797 11,632
Attributable to FMCG (Rs.Mn) 4.7% Attributable to FMCG (Rs.Mn)
7,838 CAGR 9,007
FMCG (ASP to Sales %) 106bps decline FMCG (ASP to Sales %)
6.1% 5.0%
Industry expert suggest as brands mature ad-spends get optimized over time. We
expect 106bps addition to EBITDA on account of drop in ad-spends
Source: Company, Centrum Broking 10ITC’s ASP to Sales % expected to be highest amongst peers
Nestle Britannia
10 6.5 7.0 8 6.0
6.4
Rs.Bn
Rs. Bn
5.4
5.5 6.0
4.6 5.0
5.1 4.3 4.3
8 4.9 4.9 4.8 4.2 4.2 4.2
5.0
6 4.0
4.0
6 3.0
3.0
4 2.0
2.0
4
1.0 1.0
2 - 2 -
CY2016
CY2017
CY2018
CY2019
CY2020
CY2021
CY2022
FY2016
FY2017
FY2018
FY2019
FY2020
FY2021
FY2022
ASP Ad-Spends to Sales ASP Ad-Spends to Sales
Even after declining 106bps, we expect ITC’s ASP to Sales ratio to be the highest among peers
Source: Centrum Broking 11FMCG Margin Drivers
Optimizing ad-spends as Brands Mature
Rising Gross Margin and Improving Product Mix
Capacity Utilization/ Operating leverage
12Improving Product Mix will further aid Gross Margins
Atta has lowest gross margin among ITC’s food products
Sunfeast biscuit, Bingo snacks & Yippee noodles are strong brands in the most rapidly growing food
categories with significantly higher gross margin than Atta and in line with category leaders
We expect atta to cede revenue share to margin accretive products (Biscuits, noodles, other packed
food)
Products have comparable gross margins to competition
Atta ceding revenue share to gross margin accretive products (Biscuits, noodles, Bingo etc)
FY18 FY20 FY23
Atta
Atta Atta
27%
31% 30%
Others Others
69% Others
70%
73%
Rising contribution from high margin products to drive foods profitability
Source: Centrum Broking 13Brand Maturity to drive industry comparable gross margins
Realisation Realisation Premium/
Pillsbury SKU Price(Rs) Aashirwaad SKU Price(Rs)
per kg per kg Discount
Chakki Fresh Atta 10kg 360 36 Whole Wheat Atta 10kg 375 37.5 4.2
Multigrain 5kg 265 53 MultiGrain 5kg 265 53 -
Realisation Realisation Premium/
Maggie SKU Price(Rs) Yippee SKU Price(Rs)
per 100gm per 100gm Discount
masala noodles 70gm 12 17.1 Magic Masala 60gm 10 16.7 -2.8
2 minutes masala 280gm 46 16.4 Magic Masala 240gm 43.7 18.2 10.8
2 minutes masala 420gm 68 16.2 Magic Masala 360gm 68 18.9 16.7
Increasing Brand Maturity
Masala– special 70gm 15 21.4 Mood masala 70gm 14.25 20.4 -5
Nutri-licious Atta 72.5gm 20 27.6 Powerup Atta 70gm 20 28.6 3.6
Realisation Realisation Premium/
Britannia SKU MRP(Rs) Sunfeast SKU MRP(Rs)
per kg per kg Discount
BourBon 150gm 30 200 150gm 30 200 -
Marie Marie
Gold 1000gm 120 120 Light Rich Taste 1000gm 120 120 -
Gold 200gm 20 100 Light Rich Taste 200gm 20 100 -
NICE NICE
coconut biscuits 150gm 25 166.7 Sugar Sprinkled Biscuits 150gm 25 166.7 -
Realisation Realisation Premium/
Real SKU Price(Rs) B Natural SKU Price(Rs)
per Ltr per Ltr Discount
Mixed Fruit 1L 110 110 Mixed Fruit 1L 78.75 78.75 -28.4
Orange 1L 90 90 Orange 1L 82.5 82.5 -8.3
Mango 1L 83 83 Mango 1L 82.5 82.5 -0.6
Lichi 1L 85 85 Lichi 1L 82.5 82.5 -2.9
Guava 1L 75.8 75.8 Guava 1L 78.75 78.75 4
Apple 1L 88 88 Apple 1L 82.56 82.56 -6.2
As brands mature they will start making industry comparable margins, as seen in the past
Source: Centrum Broking 14Moreover, Adjacencies to have a shorter span to maturity
Company brand strategy suggest the mature brands have achieved strong brand recall
Hence matured brands can enter into adjacencies
This means:
accelerated maturity for brand extensions
faster breakeven and payback
Further strength to core brand
Source: Centrum Broking 15Rising Gross Margin and Improving Product Mix to add ~226bps
Estimated Gross Margin Improving product gross margin expected to add ~198bps
FY20 FY23 Gross Margin Change
Revenue Gross Margin Gross Profit Revenue Revenue Gross Gross Profit Increase in
Particulars Particulars
(Rs.Mn) (%) (Rs Mn) Share (Rs.Mn) Margin (%) (Rs Mn) Margin
Atta 31000 13.3 4,120 24.1 Atta 31000 14.7 4,554 140.0
Biscuits 35700 35.0 12,495 27.8 Biscuits 35700 36.4 12,995 140.0
Noodles 13500 32.0 4,320 10.5 Noodles 13500 33.5 4,523 150.0
Snacks/Chips 12400 36.6 4,533 9.7 Snacks/Chips 12400 38.1 4,719 150.0
Confectionary 5400 50.0 2,700 4.2 Confectionary 5400 50.0 2,700 -
Others 5777 29.0 1,675 4.5 Others 5777.3 33.0 1,907 400.0
Foods 1,03,777 28.8 29,843 80.8 Foods 1,03,777 30.3 31,397 149.7
Other than Foods 24665 25.0 6,166 19.2 Other than Foods 24665 29.0 7,153 400.0
Total FMCG 1,28,442 28.0% 36,009 Total FMCG 1,28,442 30.0% 38,549
Improving Product Mix to add ~28bps
FY23 Saliency Change
Gross Gross Profit Revenue Change in 198bps
Particulars
Margin (%) (Rs Mn) Share revenue Share
Atta 13.3 4,120 24.1 -2.0
Biscuits 35.0 12,495 27.8 1.3
Noodles 32.0 4,320 10.5 0.3
Snacks/Chips 36.6 4,533 9.7 0.3
Confectionary 50.0 2,700 4.2 -1.0
28 bps
Others 29.0 1,675 4.5 3.2
Foods
Other than Foods
29.0
25.0
29,843
6,166
80.8
19.2
2.1
-2.1
+226 bps
Total FMCG 28.3% 36,009
^ Applying Standard costing concepts
Source: Centrum Broking 16FMCG Margin Drivers
Optimizing ad-spends as Brands Mature
Rising Gross Margin and Improving Product Mix
Capacity Utilization/ Operating leverage
17Capacity utilization increasing with revenue scale up
Contract manufacturing charges broadly stagnant in-spite of revenue scale up, indicating improving capacity utilization
8.7 2.5
8.6 2.3
8.5 2.0
8.4
1.8
8.3
1.5
(INR Bn)
% of Sales
8.2
1.3
8.1
1.0
8.0
0.8
7.9
7.8 0.5
7.7 0.3
7.6 0.0
FY2015 FY2016 FY2017 FY2018 FY2019 FY2020
Contract processing charges % of Sales
Source: Company, Centrum Broking 18Operating leverage to lift EBITDA Margin
Particulars FY20 (Rsmn) FY23E (Rsmn)
FMCG Revenue 128,442 178,504
Total FMCG Gross Margin 36,009 54,156
Less: Reported EBITDA 9,140 22,038
Implied Opex of FMCG Segment 26,869 32,118
Less: ASP Attributable to FMCG 7838 9,007
Opex exclu.ASP 19,032 23,111
Fixed 45% 8,564 8,564
Variable 55% 10,467 14,547
14.8% 12.9%
We assume variable costs will increase in tandem with revenue growth, however, fixed costs will drive
operating leverage and lift EBITDA margin by 187bps
Source: Centrum Broking 19Summary of EBITDA Margin drivers
FY 20 Optimizing Improving Realization led Operating FY 23E
EBITDA brand Product Mix improvement Leverage (%) EBITDA
Margin% spends (%) (%) (%) Margin%
We estimate 519 bps increase in EBITDA margin over FY20-FY23E
Source: Centrum Broking 20Section 2
Cigarettes will continue to remain the cash-cow enabling FMCG business
to invest optimally for the future
21Cigarette business still holds pricing power
Revenue from Cigarette business has been on a rise…
500 Revenue
450
Oligopoly market - Cigarettes withstood the 400
350
worst of tobacco taxation in India 300
Rs. Bn
250
200
150
100
50
-
FY2016
FY2019
FY2010
FY2011
FY2012
FY2013
FY2014
FY2015
FY2017
FY2018
FY2020
Despite dual event of tax burden (GST + Budget)
ITC improved its margins over period
…despite volume decline, led by margin expansion
80 100
70 90
80
60
ITC has pricing supremacy, which has reflected in 50
70
Bn Sticks
60
revenue growth and Cigarette margin expansion. 40 50
%
30 40
In-spite of volume decline 20
30
20
10 10
0 0
FY2011
FY2010
FY2012
FY2013
FY2014
FY2015
FY2016
FY2017
FY2018
FY2019
FY2020
Volume (Bn Sticks)- RHS EBIT Mrgin (%)- LHS
Source: Company, Centrum Broking 22Ballooning cash-flow - Enabling optimum investments for the future
ITC’s Food business is relatively young and has built distribution, scale and size over the years
With 6 out of 11 brand in packed food are in the incubation stage, ITC needs to continue investing to
build these brands
Moreover, we believe ITC will continue to enter in new branded food categories for years to come
The cash generated by cigarette business is more than enough to take care investment for the future,
yet leaving more than 80%+ of the earnings for dividend distribution
ITC’s FCF has been ballooning in-spite of high investment cycle
160 35
140 30
120
25
100
20
RS.BN
RS.BN
80
15
60
10
40
20 5
- -
FY2002
FY2001
FY2003
FY2004
FY2005
FY2006
FY2007
FY2008
FY2009
FY2010
FY2011
FY2012
FY2013
FY2014
FY2015
FY2016
FY2017
FY2018
FY2019
FY2020
Capex (RHS) OCF FCF
Source: Company, Centrum Broking 23Section 3
Capex & Valuation
24Moderate to lower incremental capex - positive
Management re-strategized to reduce capex for Hotels business by securing more management contracts going
forward
Current capex for FMCG to complete 2 ICMLs (total 9) and defer balance 6 (total planed 15)
Thus, it will increase capacity utilization and ROCE for FMCG business, yet overall company ROCE may decline
We believe the capex requirement for the business has reduced considerably
Capex allocation to FMCG and Hotels had increased over the past 5 years Cumulative Segmental Capex (FY16-20)
30
25
20 7%
21%
Rs. Bn
15
4%
10
44%
5
24%
-
FY2016 FY2017 FY2018 FY2019 FY2020 FY2021E FY2022E FY2023E
Cigarettes - Capex (RHS) Other FMCG - Capex (RHS)
Hotels - Capex (RHS) Agri business - Capex (RHS)
Paperboards, paper, and packaging - Capex (RHS)
Source: Company, Centrum Broking 25Capital Employed and ROCE for FMCG segment to optimise
120 FMCG 20
100
15.1 15
80
60 10
%
Rs bn
40 6.4
5
20
0 0
FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021E FY2022E FY2023E
Other FMCG Capital Employed (in Rsm) Other FMCG ROCE (in %) - RHS
Other FMCG ROCE set to grow over 2x in the next three years, helping aid overall ROCE
800 Overall ROCE 50
700
40
600
500 33
30
28
400
%
Rs bn
300 20
200
10
100
0 0
FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021E FY2022E FY2023E
Total Capital Employed Overall ROCE%
Source: Company, Centrum Broking 26Valuation- SOTP
Multiple
Segment Metric Per share Value (Rs) % of Total Value Comment
(x)
ITC commands market leadership with 75%+
volume market share and best in class profitability
Cigarettes P/E 20 205 58
and return ratios. Hence assign 10% Premium to
cigarette peers VST Industries & Godfrey Phillips.
Given ITC's improving profitability profile (lower
FMCG (Others) EV/Sales 5 68 20 than Britannia) we assign 20% discount to Food
major Britannia's 3 year average EV/Sales.
Hotels EV/EBITDA 12 6 2 In-line with peers
Premium to peers assigned due to high share, scale
Paperboards EV/EBITDA 10 16 5
in value add products and strong client base.
ITC's Agri-business has strong moat given its
Agri-Business EV/Sales 2 24 7 connect in the hinterland through e-choupals and
strong affinity from the farmer community.
Less: Net Debt (32) 9 At 1x book value
Total Equity Value 351
Implied SA P/E (X) 23.5
ITC: Target Price Sensitivity to Cigarette / FMCG Valuation Multiples on FY23E Financials
EV/Sales to FMCG Sales
316 3.2 3.7 4.2 4.7 5.2 5.7 6.2
P/E (x) to Cigarettes
14 268 275 283 290 297 304 312
16 288 296 303 310 318 325 332
EPS
18 309 316 324 331 338 345 353
20 329 337 344 351 359 366 373
22 350 357 365 372 379 386 394
24 371 378 385 392 400 407 414
26 391 398 406 413 420 427 435
Source: Centrum Broking 27Valuation- DCF
WACC (%) 9.0
Terminal growth (%) 4.0
PV of exp CF (Rsmn) 14,16,721
PV of terminal CF (Rsmn) 25,73,639
EV (Rsmn) 39,90,360
Net debt/(cash) (Rsmn) (3,52,385)
Equity value (Rsmn) 43,42,745
# of shares (mn) 12,292
Equity value (Rs/share) 353
DCF Sensitivity to WACC (%) and Terminal Growth (%)
WACC (%)
Terminal growth
8.0 8.5 9.0 9.5 10.0
3.0 384 347 316 290 268
rate (%)
3.5 411 368 333 304 279
4.0 446 394 353 320 292
4.5 490 427 378 339 308
5.0 549 469 409 363 326
Source: Centrum Broking 28ITC - 20 year PE Cycle
We estimate FMCG business ROCE to more than double to 15.1% by FY23E
FMCG business has a meaningful Other FMCG fails to contribute Bull Case
contribution to the top-line. significantly to the bottom line, higher Other FMCG margins expansion
40
Investors positive despite higher taxation on cigarettes under GST.
taxation cigarettes higher than expectations on back
of acquisitions, Cigarette revenue
36 growth outperformance.
FMCG business started growing higher
double digit. Diversification theme
32 played out. EPS= 16.0; PE= 28x
TP = 448
28 Base Case
Other FMCG margins scale up
consistently to be comparable to
24
peers, Cigarette revenue recovers
sharply in FY22.
20
P/E
EPS=14.9; PE= 23x
16
TP = 344
Bear Case
12 Price Other FMCG Margin expansion
continues to miss expectations ,
sharp tax increases on cigarettes
8 pressurises growth.
Sep-01
Sep-02
Sep-03
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
Sep-09
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
EPS=13.7; PE= 18x
P/E Mean (22.9) Mean + Std Dev Mean - Std Dev Mean + 2 Std Dev TP = 246
Source: Centrum Broking 29Scenario Summary
Base Bear Bull
Cigarette Revenue Growth
FY21 -12.7 -23.9 -4.8
FY22 29.0 7.6 27.5
FY23 3.5 2.9 5.5
Cigarette Cigarette EBIT Margin
FY21 70.8 70.8 70.8
FY22 74.3 71.7 74.5
FY23 74.8 72.6 77.3
FMCG EBIT Margin
FY21 4.6 4.6 4.6
FMCG FY22 6.6 5.7 9.2
FY23 8.6 7.2 15.6
ITC EBITDA Margin
FY21 33.6 33.6 33.6
FY22 38.5 37.9 39.1
FY23 38.1 37.5 38.8
Company ITC EPS
FY21 10.2 9.9 10.9
FY22 13.8 12.6 14.7
FY23 14.9 13.7 16.0
Source: Centrum Broking 30Revised dividend pay out policy addresses investor concerns
90.0 14.0
85.0 12.0
80.0
10.0
Dividend per share (Rs)
Dividend Pay-out (%)
75.0
8.0
70.0
6.0
65.0
4.0
60.0
55.0 2.0
50.0 0.0
FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021E FY2022E FY2023E
DPS Dividend Payout Ration (%)
Positive impact from new dividend payout policy (increased to 80%-85% of profits) to aid capital efficiency
Source: Company, Centrum Broking 31Estimated Summary Financial YE Mar (Rsm) FY19A FY20A FY21E FY22E FY23E Revenues 4,44,327 4,51,361 4,12,322 5,04,090 5,55,085 EBITDA 1,67,425 1,74,206 1,38,710 1,93,985 2,11,671 EBITDA margin (%) 37.7 38.6 33.6 38.5 38.1 ANet profit 1,24,643 1,52,682 1,26,109 1,69,869 1,83,841 AEPS (Rs) 10.1 12.4 10.3 13.8 14.9 AEPS growth (%) 13.6 22.5 -17.4 34.7 8.2 APE (x) 18.2 14.8 17.9 13.3 12.3 EV/EBITDA (x) 15.5 14.9 18.8 13.4 12.3 RoE (%) 22.8 25.0 19.4 25.3 26.3 RoCE (%) 18.3 19.9 14.7 20.2 21.1 Source: Company, Centrum Broking 32
FY23E Segmental Contribution
Revenue Saliency FY23E
42% 30% 4% 14% 9%
Cigarettes FMCG Hotels Agri Paper
77% 7% 1% 7% 8%
EBIT Saliency
We estimate marked shift in FMCG business profitability
Source: Company, Centrum Broking 33A look at ITC foods revenue projections
FY18 FY19 FY20 FY21 FY22 FY23 FY18-FY20 CAGR FY20-FY23E CAGR
Atta 26,900 30,400 31,000 34100 36828 39590 7.4 8.5
% Growth - 13.0 2.0 10.0 8.0 7.5
Biscuits (Sunfeast) 31,200 35,000 35,700 41412 46381 51947 7.0 13.3
% Growth - 12.2 2.0 16.0 12.0 12.0
Bingo 10,600 12,300 12,400 13640 15550 17727 8.2 12.7
% Growth - 16.0 0.8 10.0 14.0 14.0
Yipee + KOI 12,000 13,700 13,500 15390 17237 19219 6.1 12.5
% Growth - 14.2 -1.5 14.0 12.0 11.5
Confectionary (inc.
5,000 5,500 5,400 5454 5563 5674 3.9 1.7
candyman)
% Growth - 10.0 -1.8 1.0 2.0 2.0
Others (B-Naturals, Fable,
Sunbeam, Wonderz Milk,
987 -213 5,777 6355 9342 13733 141.9 33.5
Farmland, Aadhirwaad
Adjecencies)
% Growth - - - 10.0 47.0 47.0
Foods 86,687 96,687 1,03,777 1,16,351 1,30,901 1,47,890 9.4 12.5
Lifestyle Retailing 5,048 3,000 800 440 682 716 -60.2 -3.6
% Growth - -40.6 -73.3 -45.0 55.0 5.0 - -
Education & Stationery 6,186 7,000 7,700 6160 8008 8809 11.6 4.6
% Growth - 13.2 10.0 -20.0 30.0 10.0 - -
Personal Care 9,638 11,100 12,700 12700 14224 15931 14.8 7.8
% Growth - 15.2 14.4 - 12.0 12.0 - -
Agarbatti 1,944 2,200 2,420 2662 3008 3399 11.6 12.0
% Growth - 13.2 10.0 10.0 13.0 13.0 - -
Matches 3,610 3,700 3,740 3777 3891 4007 1.8 2.3
% Growth - 2.5 -11.7 1.0 3.0 3.0 - -
Other than Foods 26,457 28,191 24,665 25,948 28,733 30,614 -3.4 7.5
Other FMCG Total 1,13,144 1,24,878 1,28,442 1,42,299 1,59,634 1,78,504 6.5 11.6
Source: Company, Centrum Broking 34Risks
Possible Upsides Possible threats to re-rating
It holds immense potential to scale up foods Entering too many categories too soon may
portfolio to drive revenue ahead of industry keep ITC’s advertising spend, weighing high on
margins
It has strong distribution muscle which could
expand further Higher adherence to ESG norms by
Institutional investors may further reduce
It is developing channel expertise across retail, shareholder pool
MT and HORECA
FII’s have been consistently selling stake in ITC.
Long journey cut short from ready-to-eat and FII shareholding has decreased to 14.6% as at
now ready-to-cook JQ’20 from 16.8% in JQ’19
Recipe in making total food solution company Possibility of SUUTI stake sale is an overhang
for excess supply
High dividend leading to strong dividend yield
Declining valuations of global cigarette majors
35"Someone's sitting in the shade
today because someone planted
a tree a long time ago"
-Warren Buffet
Thank You 36Disclaimer
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ITC price chart
Source: Bloomberg
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