Steep inflation ate into households budgets during the past year, and consumption demand remained subdued in rural markets and for discretionary categories in urban markets, ITC has said in its latest annual report. In this backdrop, for 2023, the impact of El Nino, along with related events like heatwaves, spatial and temporal rainfall distribution, will be crucial factors to monitor in 2023. These factors are expected to have implications for agricultural output, inflation, and consumer demand, according to the company's Report of the Board of Directors for FY23.
This, the company says, is because even as inflation is projected to soften on an overall basis, prices of certain industry-specific commodities are expected to remain elevated. Moreover, the year is also expected to witness 'El Nino' weather phenomenon after three consecutive 'La Nina' years.
"A good Rabi harvest, broad-based credit growth and Government’s thrust on capital spending to bolster investment activity supported by buoyant tax collections, augur well for the economy going forward," it said.
However, despite the pace of growth of the Indian economy being projected to decelerate in FY24 against the backdrop of global macro headwinds, India would continue to be the fastest growing major economy in the world, the company added.
Outlining the business performance of each of its businesses, ITC said gross revenue grew 17.6 percent in FY23 to Rs 69,480.89 crore while EBITDA increased by 26.5 percent to Rs 23,944.47 crore and Profit After Tax stood at Rs 18,753.31 crores.
FMCG Cigarettes
The legal cigarette industry recovered during the year with normalisation in the operating environment after two years of severe disruptions due to the pandemic, ITC said, adding, the segment saw a claw back of volumes from illicit trade on the back of stability in taxes on cigarettes, backed by deterrent actions by enforcement agencies, which led to higher demand for Indian tobaccos and robust growth in revenue to the Exchequer from the tobacco sector.
While calling for a stable taxation and regulatory regime to enable the legal cigarette industry to recover volumes from illicit trade, ITC stated that it has been fortifying its product portfolio through innovation, democratising premiumisation across segments and enhancing product availability.
"The Business also expanded its presence in focus markets with the launch of differentiated offerings across segments and strengthened its presence in Duty-Free outlets at airports," it added.
It is important to note that ITC’s dependence on the cigarette business for growth has significantly come down with its increased focus on other FMCG categories, that have been generating positive free cash flow.
FMCG – Others
ITC has said that its portfolio of over 25 brands now represent an annual consumer spend of early Rs 29,000 crore and reach 230 million households in India. This figure stood at Rs 24,000 crore last year, reaching 200 million households.
However, the company has flagged inflation impinging upon household budgets and despite certain commodities prices seeing sequential moderation towards the latter half of the year, input costs remained elevated, it stated. While some categories like staples and convenience foods saw strong traction, ITC says the health & hygiene portfolio of personal care products witnessed moderation in demand, but grew ahead of pre-pandemic levels.
"Hyper-inflationary pressure on prices of key inputs witnessed in the previous year continued to impact the industry for most of the financial year. The surge in inflation also led to moderation in demand, especially in rural markets. However, progressive improvement was witnessed during the course of the year," ITC said, referring to the personal care business.
ITC has also been betting big on millets, along the lines of the government’s focus on promoting millets. While the company has launched various millet-based products across its staples, biscuits and confectionery businesses, ITC has added that it Company is further developing a comprehensive millets-based portfolio under its popular brands and in familiar formats to enable easier adoption.
ITC added that it is proactively pursuing value accretive acquisitions, joint venture and collaboration opportunities. Over the past year, ITC announced the acquisition of Yoga Bar (in Jan 2023), a minority stake in mother & baby care brand Mylo (April 2022), along with increasing its investment in Mother Sparsh over the year.
Hotels segment
ITC’s hotels business has been in focus over the past year with a potential demerger underway. The company has said in the past that it is looking at unlocking value for the business once it recovers from the pandemic.
After CNBC-TV18 reported that the demerger of the hotels business is underway, ITC clarified that the company remains committed to implement its ‘asset-right’ strategy with respect to the Hotels Business.
In its annual report, ITC reiterated that the hotels business is confident of rapidly scaling up revenues through the asset right strategy going forward, which is seeing growing interest among property owners resulting in healthy generation of leads and pipeline of management contracts.
“As reported earlier, your Company remains committed to implement its ‘asset-right’ strategy, focus on sweating existing assets, create additional revenue streams and pursue alternate structures in view of the strong industry recovery witnessed during the year towards engendering the next horizon of growth as also enhancing value creation,” ITC reiterated in its annual report.
Other businesses
On the Agri business, the company said that the operating environment was challenging during the year due to severe inflationary headwinds and concerns of food security that emerged due to geopolitical tensions and erratic weather patterns.
"The scope and scale of operations of your Company’s Agri Business have grown manifold over the years and currently encompass over 4.5 million tonnes of annual volume throughput in 22 states and over 20 Agri-value chains," ITC stated.
On its ambitious Agri super app ITCMAARS, the company said the platform has now been scaled up to across nine states with over 1150 Farmer Producer Organisations (FPOs) and more than 5,00,000 farmers being added to its network.
