From a cigarette addict, ITC turns into a social smoker

MUMBAI: Cigarettes contributed less than half to ITC Ltd’s gross sales for the first time in the last fiscal year, indicating that the century-old company’s strategy to reduce revenue dependence on tobacco and transform itself into a consumer goods major is yielding the desired results.More than two decades after Virginia House began executing a diversification blueprint that would expand consumer product lines beyond tobacco, the cigarette division contributed 45.8% to ITC’s gross revenue in FY19. That compares with a 52% share a year ago and nearly two-thirds of sales in FY16 and FY17, showed the Kolkata based company’s annual report filed Thursday.The foods division, comprising cookies, staples and snacks, now accounts for 21.3% of revenue, while agri-business generated 13.4% of ITC’s gross turnover last fiscal.Company’s Focus on Foods DivisionFive years ago, the foods business made up 12.8% of sales, while the share of agri-business was 8%.“The company’s non-cigarette businesses have grown over 21-fold since 1996,” Sanjiv Puri, chairman of ITC, said in the annual report. “In aggregate, the non-cigarette businesses account for over 80% of your company’s operating capital employed, about 90% of the employee base, and over 80% of annual investments."In the past few years, ITC evidenced its makeover into a diversified group through double-digit growth in the non-cigarette business, especially foods. FMCG products, which include packaged food items, soaps, shampoos, shower gels, apparel, and branded stationery, generated sales of about Rs 12,500 crore in FY19.The foods division is expected to be at the vanguard of ITC’s expansion plans, helping achieve the company’s earlier stated goal of generating Rs 1 lakh crore in sales from non-cigarette FMCG businesses by 2030. This division is expected to generate Rs 60,000-65,000 crore in sales, up from about Rs 9,700 crore now.With brands such as Aashirvaad, Bingo, and Sunfeast, ITC is the leader in the branded wheat-flour market and a dominant player in cookies. ITC is India’s second-largest company in segments such as noodles, deodorants and incense sticks. It is also India’s second-largest hotel chain, with revenues in excess of Rs 1,648 crore.“It is a very big milestone for ITC, one that would help change its perception – from a cigarette-dependent firm to a diversified consumer company,” said Abneesh Roy, senior vice president at Edelweiss Securities.ITC’s core tobacco business has been affected in recent years by steep increases in taxes and trading volumes in illegal cigarettes.“Amid a subdued demand environment, the non-cigarette FMCG segment grew ahead of the industry, recording robust growth in revenue and significant improvement in profitability,” Puri said in the annual report. This was achieved, he said, “despite heightened competitive intensity, elevated input costs, gestation costs of new products/categories and manufacturing facilities, and ongoing restructuring of the lifestyle retailing business”.

from Economic Times http://bit.ly/2WFrMmT