InvestorQ : Do you think that ITC needs to start thinking about its business differently to sustain value in future also?
Dhwani Mehta made post

Do you think that ITC needs to start thinking about its business differently to sustain value in future also?

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Dilmini Mercia answered.
2 months ago
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You need to understand that ITC has long been seen as a very safe and stable company. However, over the last few years, it has been the favourite whipping boy whenever the government wants to enhance its revenues. That has led to the stock losing substantial value and has even dropped out of the top-10 most valuable stocks in India.

More than 24 years back, when Deveshwar had taken over as the chairman of ITC, the company had run into excise issues. Back then, it was Deveshwar who had set in motion a massive shift in focus to the non-cigarette businesses. In last 20 years, ITC made rapid strides in by diversifying into FMCG products, lifestyle products, fast foods, packaged products, agriculture, hotels, packaging products etc.

One thing has not really changed at ITC. It continues its overt dependence on the cigarettes business for its overall profits. For example, if you look at the latest fiscal year FY20, nearly 85% of net profits of ITC still emanate from the cigarettes business. That is the reason, ITC still trades at a discount to other FMCG companies like HUL, Britannia etc.

What exactly should ITC do now? It is becoming increasingly evident that the core cigarettes business is going to be a cross around its neck. Since ITC and Wills are still associated with cigarettes, ITC has not made significant impact in the FMCG business. This is after investing billions of dollars in setting up the other franchises.

What is the way out for the company? ITC has to quickly look at separating the ITC brand from its non cigarette businesses. These diverse businesses must be treated as standalone businesses for all practical purposes. The latest bill could just put a lot more of restrictions. ITC will continue to see cigarettes as a cash cow, but it will not generate much value.

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