The share of the cigarette business to ITC’s business in revenue terms has dropped from 47 per cent in FY13 to 37 per cent in FY23 on a larger revenue base. According to the company’s most recent annual report, the leadership position has been sustained “through its unwavering focus on nurturing a future-ready portfolio of world-class products anchored on its integrated seed to smoke value chain, superior consumer insights, robust innovation pipeline and world-class product development capabilities.”
A report put out by Emkay Global estimates around 8 per cent sales growth on a compounded basis for the business (over Rs 24,000 crore for FY23) and 9 per cent for EBIT between FY23-26.
ITC recently launched differentiated variants such as Classic Connect, Gold Flake Indie Mint, Gold Flake Kings Mixpod, Classic Alphatec, Gold Flake Smart Mintz, Wills Fab and Lucky Strike.
“Your Company continues to counter illicit trade and reinforce market standing by fortifying the product portfolio through innovation, democratising premiumisation across segments and enhancing product availability backed by superior on-ground execution,” said the annual report.
Meanwhile, Emkay has a buy call on ITC with a price target of Rs 525 on the basis of “firm structural prospects”; at the BSE, the stock closed on Friday at Rs 473.55, a spike of over 60 per cent in the last one year.
“From the core cigarette business perspective, we expect rational tax hikes ahead, given higher share of the ad-valorem component leading to build-up of volumes, which along with improving mix would aid a high-single-digit EBIT growth. In non-cigarette operations, we continue to see profitable growth and improving return profile, where segments are self-sufficient to address their growth needs” it states. It goes on to say that amid the enhanced demand setting in F&B, agri export and paper, execution will be key. “We continue to see ahead-of-time capex as a business moat, which enhances the company’s structural prospects. Value unlocking in hotels operations remains a near-term catalyst.”
Specifically, on the cigarettes business, it outlines the key tailwinds such as higher ad-valorem component in taxation to limit the need for any sharp tax hikes. “While we cannot rule out the possibility of return of double-digit taxation, we see the government being rational in imposing tax hikes,” it states. A better connect with the youth through innovative formats – low-smell products, flavour and capsule formats – coupled with a fortified portfolio, curbing illegal supplies and improving sales mix from deluxe size filter tip to regular size filter tip and then to king size filter tip, are other positives.
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