ITC's latest acquisition good in long-term: P Lilladher

Below is verbatim transcript of the interview:

Q: We do not know your estimate. Some previous reports have placed it at around Rs 90 crore but tell us whether this makes the seminal? What will be the cost and what difference does it make to ITC?

A: It is very difficult to estimate the cost of this acquisition. In absolute numbers the acquisitions per se is not very significant given that ITC’s own fast-moving good and consumer (FMCG) business would be close to Rs 9,000 crore in the current year. Having said that, it will definitely give a much needed boost to personal care business of ITC, which has not been doing great except a couple of brands in the past two-three years.

Now this brings to them Savlon which is a number II brand after Dettol in antiseptic liquids and also had presence in the antiseptic germ kill soaps. Also, Shower to Shower which is predominantly in prickly heat powder is a number two or number three. Also it had once upon a time tried in some sort of toilet soaps in a small way.

So the brands are good, the positioning is right and ITC does not have presence in these niche positions and if capitalised well there is a lot of scope to extend particularly Savlon to even your hand wash etc. From that angle long-term scope is immense; near-term impact I do not think it is very meaningful.

Q: How seminal is this acquisition? I know you did say that it could be scaled up going forward but for a company like ITC a small ticket acquisition or is it more a sentiment impact that their strategy to grow organic as well as inorganically in the FMCG business perhaps this is the first assertion of that?

A: It is not a first time. The company acquired the match box business a few years back. They have also acquired a juice plant a few quarters back. When you try to create the capabilities inside whether it is brand, whether it is products side it takes much more time.

When you do acquisitions if the brands, they have got good hold on the consumers make sense for a player like ITC which is having very deep distribution and good financial to take up such brands a start promoting on and scaling them up. So, it reduces your time to market significantly.

Q: Does it change your view of ITC price or anything at all? What is your rating and your price target?

A: We have cumulative rating on the stock. The price target is around Rs 413 per share. ITC is more a play on cigarettes, small acquisition in personal care I do not think it is going to have any change in rating of the stock.