ITC’s capacity to compete with organised and illegal companies in the market has helped it gain market share in the Indian cigarette business. The recent budget’s slight 2-2.5% rise in the overall cigarette tax opens the path for balanced revenue growth (volume + price) and more share gains from illegal trade. According to our assessment, the FMCG sector is on track to continue delivering margin expansion of 100-150 bps/year for the next three to five years. Even though it moderates from present record levels, the margins for the Paperboards and Hotels segment are projected to settle substantially above the pre-pandemic level. In FY2024e, the company’s EPS will increase by 11%. As long as there is a solid tax system and steps are done to crack down on illicit commerce, this double-digit (DD) growth can continue.
Cigarettes: On track to deliver DD revenue/Ebit growth in FY2024E: The stable tax regime over the past three years has helped ITC gain share from illicit trade and recoup some volumes lost to disruptions. Moreover, the ITC’s implementation, product innovation, the growth of rural distribution, and enforcement agency activities have all been beneficial. As a result, in Q3FY23, ITC’s cigarette volume CAGR (3-yr) increased to 6.3% (KIE estimate). We notice that ITC has implemented a 2% price increase at the portfolio level. The measured tax rise in the most recent budget would enable ITC to generate revenue growth through a balance of volume growth and pricing. In FY2024E, we project cigarette segment volume, revenue, and Ebit growth of 7%, 11%, or 13%, while assuming a 4% price increase. As long as the stable tax system and the enforcement agencies’ deterrent activities remain, DD Ebit growth can endure past FY2024E.
FMCG: Strong growth with 100–150 bps expansion: ITC’s FMCG segment experienced above-average 3-year sales CAGR of 14% for the nine months ending in 9MFY23. Through its distinctive play, the company has grown its FMCG business and taken the lead in a number of categories. In the personal care section, ITC is picky about the segments it airs. Aashirvaad operates with an Ebitda margin in the double digits. The brand’s future development will centre on reaching adjacent markets. For the previous five years, the Ebitda margin grew by an average of 100 bps per year.
A stable and supportive taxation regime over the past 2-3 years, innovations to drive premiumization and introductions to address consumer needs, increased presence in rural India, better execution, and improved visibility at the point of sale were the primary factors in ITC’s market share gains in cigarettes, which came from both organised and illicit trade. Industry estimates place the volume of illegal trading at 25% of the entire cigarette market. Excise duty increases benefited illegal trade, while the legal sector—which competes in both the premium and economy categories with a 60:40 mix—suffered the most.
We estimate 7% volume growth in FY2024E, led by (i) modest increase in tax in the recent budget, (ii) growth momentum that the segment has been witnessing off-late and (iii) some clamp down on illicit trade by enforcement agencies.
FMCG business
ITC was able to grow its FMCG business to Rs 42 billion in 9MFY23 thanks to its enviable positions in markets like Atta, where ITC’s Aashirvaad holds a 40% market share, biscuits, where it leads in premium cream segments, noodles, where it holds a stable 20% market share, education stationery products, where it holds the market leadership position, and personal care, where it holds the top spot in differentiated products (hand and body washes).
The personal care segment is still marginally weak due to greater levels of competition and ITC’s selective approach to the markets they compete in, despite the fact that it has the right to win in the foods section. For forward, we anticipate ITC to concentrate on extending the brand to adjacent markets; under the Aashirvaad name, ITC is present in the salt, spice, dairy, vermicelli, and other industries. Besan, suji, and other products are examples of brand extension.
source from: msn.com
