ITC rides non-cigarette segments for fast growth

Conglomerate ITC, which leads the cigarette market, is slowly and steadily strengthening its position in non-tobacco segments as well. It is a growth story, powered by a strategy of diversification, which many analysts are betting on.

Avi Mehta, analyst at IIFL, believes that the company’s diversification strategy will pay off and they will be able to break even in fast moving consumer goods (FMCG) and other businesses this fiscal.

“Other FMCG growth remains buoyant at 20% plus on a year-on-year basis. Moreover, market leadership in high-quality packaging material should sustain growth in the paper business. This should compensate for the weakness in hotel segment,” said Mehta.

ITC has also been trying to establish itself in the 64-mm small-filter cigarette segment. This will help company sustain its volume despite global headwinds.

“ITC’s launch of sub-65mm cigarettes should aid conversion from bidis/contraband cigarettes and help increase the share of cigarettes versus other forms of tobacco consumption. This should sustain volume growth in cigarettes,” said Mehta.

“We expect ITC to grow at the rate of 17%, driven by the company’s diversified business model and ability to invest in growing businesses,” said an analyst at Angel Broking.

In the consumer space, ITC has already managed to establish a strong presence with various brands across categories. Apart from cigarettes, the company also has a strong presence in FMCG, hotels, paperboards, packaging and agri business. And the growth momentum in these verticals is expected to continue.

“The company’s segment-wise revenues have been growing at a faster pace, and will touch Rs5,000 crore turnover in a short time. This is expected to triple in the next five to seven years,” said an analyst at Firstcall Research. Now the company is also mulling to enter the nutrition, health and well-being segments. The plan is to invest Rs25,000 crore over 40 projects across the country in the next seven years.

Credit Suisse in a report says that there is more steam left in consumer staple companies such as ITC. The financial services company states that it is overweight on the consumer sector and maintains an ‘outperform’ rating on ITC.