According to JM Financial, ITC’s FMCG segment is possibly one of the most under-appreciated businesses in the Indian consumer space in recent times.
Investment analysts sounded a bullish on the prospects of a positive turnaround for the ITC stock, latest research reports show.
As per JM Financial, the addressable opportunity for ITC is still USD 2,200 crore.
“ITC’s FMCG segment is possibly one of the most under-appreciated businesses in the Indian consumer space in recent times, in our view. We suspect the market may not have taken a holistic look yet; our understanding of Indian consumer categories tells us that ITC FMCG today addresses market opportunities that are Rs 2.1 lakh crore in size in aggregate,” JM Financial said in a research report.
“Even if one excludes a couple of nascent dairy products from the portfolio, the addressable opportunity for ITC is still Rs 2.1 lakh crore- larger than even HUL’s ‘size of markets’ and more than 3x that of Nestle India’s,” it said.
“Profitability is low at present, but we reckon that with investment-phase largely done (though some new categories are still in incubation stages), profits and cash-generation would get much bigger here onwards,” the JM Financial research report said.
According to Centrum Broking, a “deep dive analysis” into ITC's foods business shows that “it is at the cusp of a take-off both in terms of top-line and margins.”
“ITC is emerging as a foods company, more comparable to Nestle than HUL. Branded packed food consistently gaining saliency given the management focus (saliency increased from 71 per cent of other FMCG in FY14 to 81 per cent in FY20),” it added.
It is the only company which has successful brands from staples (Aashirvaad) to RTC and RTE (Sunfeast, Bingo, Yippee etc.). ITC has made consistent investments in brand building over the past decade helping create brands across the branded packed food categories from staples a and dairy to RTC and RTE. Aashirvaad, Sunfeast, Bingo and Yippee now account for Rs 60 billion, 40 billion, 27 billion and 13 billion in consumer spend terms,” the Centrum report said.
“Going ahead foods division will drive both its top-line and bottom-line: Food business has enough arrows in its quiver ranging from industry growth, brand maturity to efficiency gains etc. that will help other FMCG segment to drive revenue/EBITDA CAGR of 11.7%/34.0% over FY20-23E,” the report said.
According to BNP Paribas, there is a faster than expected recovery in ITC's cigarette business. The catalyst for ITC is a faster than expected recovery in cigarette volumes and higher than expected margin expansion in the FMCG business.As per B&K Securities, a turnaround in cigarette volumes is expected from September onwards. "We believe the gradual lifting of start/stop lockdowns in most states, opening up of bars/clubs in some states and more attendance in offices due to lesser fears from Covid-19 will lead to the marginal smoker slowly coming back. Given the fact that 30 per cent of the smokers' user base comprises of non-regular smokers who have been impacted by the start/stop lockdowns, we feel the industry figures will start looking up from September 2020," it added.