Shares of ITC hit a two-month low of Rs 331.90 on the BSE in Friday’s intra-day trade, falling 2 per cent in the intra-day trade on Friday and 4 per cent in the past two trading days, amid sell-off in equity markets.
The stock of the diversified fast moving consumer goods (FMCG) was trading at its lowest level since October 17, 2022. With the past two days’ decline, ITC is now down 8 per cent from its record high level of Rs 361.90, touched on November 11, 2022. In the past three months, the stock has underperformed the market and remains flat, as compared to 4.3 per cent rise in the S&P BSE Sensex.
ITC is the biggest cigarettes and the second largest FMCG company in India with around 78 per cent of market share in cigarettes & presence in staples, biscuits, noodles, snacks, chocolate, dairy products & personal care products. The company is also present in paperboard, printing & packaging business, agri & hotels businesses.
Reliance Consumer Products, the FMCG arm and wholly-owned subsidiary of Reliance Retail Ventures, on Thursday, announced the launch of its FMCG brand ‘Independence’ in Gujarat, with products across staples, processed foods, beverages and other daily essentials. It’s product portfolio includes category like edible oils, pulses, grains, packaged foods and other daily needs products.
Reliance Consumer’s foray into FMCG through brand independence could be a threat to existing FMCG companies in the foods space like Tata Consumer and ITC, according to ICICI Securities. Though it is difficult to establish brands and distribution network in a short span of time, Reliance Industries’ foray could squeeze margins of these companies, which could result in contraction of premium valuation multiples, the brokerage firm in a note.
ITC’s FMCG business has been growing at a sustained pace with continuous improvement in margins in the last five years. Large opportunity size of existing foods (Atta, Biscuits, Juices, Noodles, snacks, Chocolate & dairy) portfolio would help in growing the business at faster pace compared to other FMCG companies.
Stable taxation on cigarettes is expected to maintain current volumes runrate. The company has been gaining market share in cigarettes from last one year through new premium products & trade promotions, analyst at ICICI Securities had said in result update.
ITC’s hotels business in occupancy levels has crossed 70 per cent & average room rates (ARRs) are above pre-pandemic levels. The brokerage firm believes it would continue to grow at a faster pace in the near term factoring in pent-up demand.
With no price hikes in the near term and government action on curbing illicit cigarette will help ITC to maintain volume growth momentum in the cigarette business, Sharekhan had said in Q2 result update.
Strong growth in non-cigarette FMCG business, recovery in the hotel business and sustained strong growth in the PPP business will drive double-digit revenues and PAT growth over the next two years, the brokerage firm said. “Strong earnings visibility with improving growth prospects of core cigarette business and margin expansion in the non-cigarette FMCG business, along with a high cash generation ability and strong dividend payout will reduce the valuation gap in the coming years,” it added.