Thread by @MlnDollarMinds

#ITC at #AshwamedhIndiaConclave organised by #ElaraSecurities

Time for thread 👇🏻👇🏻👇🏻

@dmuthuk

1

During COVID Wave II, the cigarettes industry was affected by severe restrictions on store operating hours & reduced mobility; hence, May was much affected. Post first week of June, week-on-week demand has improved and the recovery rate is faster than that during last year.

2

ITC’s capsule cigarettes are present across all segments of DSFT, RSFT, Longs and KSFT. ITC believes that this category has high growth potential and hence, has heavily invested to effect 100% indigenization.

3

This should act as an added lever to aid introduction of new flavours & exploration of small batch sizes. Premiumization is possible through differential pricing in the capsule segment once this segment becomes large in size.

4

The capsule industry accounts for 13-14% of the total cigarettes market versus 2-3% 4-5 years back.

5

Indie Mint cigarette was launched in the capsule segment and is performing well. The new flavor has been added to the portfolio and response has been favorable.

6

ITC’s market share in overall cigarette industry stands at ~80% and within capsules, it has spiked its market share from 30-35% to over 60% in the past few years. ITC may not push for higher share in capsule segment as margins are dilutive.

7

Input price inflation in cigarettes is not high, unlike that in FMCG. ITC typically maintains an inventory of 1-1.5 years to protect from price volatility of agri crops. Cigarettes margins are not impacted majorly. ITC seeks to sustain its gross margin at same levels of ~73%.

8

Illicit cig industry accounts for ~25% of total industry, of which more than 50% is smuggled. Large tax increases have led to high growth of the illicit market. In last 3yrs, govt has made significant efforts to curb illicit market by way of increased seizure.

9

Cigarettes account for 10% of tobacco consumption. Key structural factors such as incr urbanization, young demographic, higher disposable income, etc. exist, thus propping industry. However, taxation regime has increased barriers to trials, thus marring cigarette consumption.
10

FMCG saw growth deceleration due to demand moderation versus that during last year when significant demand surge led by pantry loading was seen. However, hygiene product continued to perform well led by COVID tailwinds.

11

Savlon’s hygiene segment may likely see some growth deceleration post COVID, but demand will settle at elevated levels versus pre-COVID as consumers may continue to embrace good hygiene practices.

12

Spices is a large category that may benefit from consumption conversion from loose to branded products. With Sunrise acquisition, ITC may benefit from high equity & can take this product to pan-India level given its distribution strength & also cater to a larger customer base

13

ITC’s entry into new FMCG category will depend on good growth potential and better margin profile. Also, its institutional strengths such as distribution infra, agriculture linkages and life science and technology centre should come into play while entering new categories.

14

ITC Master Chef is a premium product and is meant for food-safe markets and high-end consumers. India is not yet ready for premium offerings and hence, this segment may continue to remain niche.

15

ITC has been expanding its reach in rural via direct and stockist. In the past year,given pandemic impact, ITC expanded into rural areas for both cigarettes and FMCG via the stockist channel. Hence, rural growth seems to be significantly higher for ITC versus the industry.

16

In Q1, some moderation in rural growth due to Wave II was seen, but in Q2, strong pick-up is visible. Rural now contributes ~30% to ITC’s FMCG business.

17

ITC’s hotels business is still below pre-COVID levels as business travel confidence is still low. However, compared with last year, occupancy and average room revenue are healthier due to increased leisure travel that revived strongly post COVID Wave II.

18

In the agri, ITC benefitted from trading opportunities in certain commodities - wheat & rice. But, ITC’s endeavor is to focus on valued-added segments such as spices & processed food for food-safe markets such as US & Europe. These products have higher potential.

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