ITC to enhance exports of value-added FMCG products to boost revenue

Diversified conglomerate ITC Ltd is looking to enhance exports of value-added FMCG products to boost its revenue. The company also plans to strengthen its traditional business segment of cigarettes, which accounts for nearly 40 per cent of its total turnover, by laying emphasis on innovation, premiumisation and superior on-ground execution.

Exports contributed to nearly 16 per cent of the company’s total turnover in FY22, up from around 11 per cent in FY21.

The branded packaged foods businesses currently export to nearly 60 countries across the globe. Going forward, the businesses propose to rapidly scale up exports across categories by leveraging the brand equity of core brands such as Aashirvaad, Sunfeast and Kitchens of India and investment-led incentives under the PLI scheme, the company said in its latest annual report (2021-22).

Fillip to Exports

“As we achieve scale for ITC’s FMCG portfolio, it is also our aspiration to take these world-class brands to overseas markets. In recent years, we have established distribution arrangements abroad, enabling appreciable progress of exports of ITC’s ‘Proudly Indian’ brands to over 60 countries. Over time, such exports will make a substantial contribution to the growth of ITC’s value-added FMCG portfolio,” Sanjiv Puri, Chairman, ITC, said while addressing shareholders at the 111^th annual general meeting held virtually on Wednesday.

While Puri did not specify the product categories ITC would be focusing on for exports, the company, in its latest annual report said, the PLI scheme is expected to provide further fillip to exports of products across biscuits and cakes, snacks, dairy and ready-to-eat categories. 

Future-ready capabilities

ITC’s products are currently available in nearly 70 lakh outlets through omni-channel network. The company will continue to invest in future-ready capabilities to develop new routes to market with strategic partnerships, whilst expanding the breadth, depth and effectiveness of its distribution infrastructure. 

ITC’s interventions in the newer FMCG businesses have enabled it to post a revenue growth of around 25 per cent during the last two years of the pandemic, reaching nearly ₹16,000 crore in FY22. Despite the unprecedented inflationary headwinds, the company sustained EBITDA margins last year and improved margins by 650 basis points over the last five years.

The newer FMCG businesses have garnered an annual consumer spend of ₹24,000 crore. The carefully selected portfolio, with substantial headroom to grow, is estimated to have a total addressable market potential of ₹5,00,000 crores by 2030, he said. 

The company’s value-accretive acquisitions such as Sunrise spices and investments in tech-enabled startups like Mother Sparsh and Mylo, in fast-evolving spaces like mother and childcare, will provide new vectors to accelerate growth.

It has invested in five new manufacturing facilities that will be commissioned in the near term in areas such as agri and food processing, as well as packaging, among others.

Agri-commodity exports

ITC’s agri business, which sources over 40 lakh tonnes of agri-commodities from 22 states and 20 agri-value chains, is a leading exporter to over 95 countries across the globe.

It is to be noted that agri-commodities export accounts for one of the biggest contributors to the company’s direct foreign exchange earnings.

The company witnessed nearly 47 per cent jump in direct foreign exchange earnings at ₹9,779 crore in financial year 2021-22, as compared with ₹4,600 crore in FY21, driven mainly by exports of agri-commodities. Foreign exchange earnings of the ITC Group over the last ten years aggregated to nearly $8.2 billion, of which, agri exports constituted 59 per cent, according to the company’s latest annual report (2022).

Although nearly half of the country’s workforce is dependent on agriculture, it contributes to less than 19 per cent of the country’s GVA, reflecting the challenges of low productivity, investments and incomes, Puri said. Even though India is blessed with strong endowments in agriculture, its share of global trade is only 3 per cent, whilst less than 10 per cent of the country’s agri produce is processed.

“ITC is committed to make a meaningful contribution to this new era of agricultural transformation. The strategic focus will therefore be on strengthening its value-added portfolio, expanding regenerative agriculture initiatives through its climate smart programmes and accelerating adoption of advanced technologies through ITCMAARS to create new and scalable revenue streams, whilst benefitting farmers. Over time, ITC will engage and empower over 4,000 FPOs, thereby benefitting more than one crore farmers,” he said.

Cigarettes business

The traditional business segment of cigarettes recovered during FY22 with normalisation of economic activity and is now ahead of pre-pandemic levels.

“The legal cigarette industry has been severely impacted by smuggled and tax-avoided products over the years and a relatively stable tax regime is expected to enable the industry to claw back volumes over time. To counter the menace of illegal cigarettes and reinforce market standing, your company will continue to fortify the product portfolio with focus on innovation, premiumisation and superior on-ground execution,” he said.

Revival plans

ITC is looking to revive its plan to create an alternate structure for the hotels business, which had been put on the backburner, due to an improvement in business sentiment aided by post Covid recovery.

It is to be noted that the proposal of creating alternative structures for the hotels business to enhance value creation had found mention in its annual report for FY20. Though the company did not divulge specific details, the market has been speculating about the possibility of a demerger of the hotel business.

According to Puri, the last two years have been the most challenging for the travel and hospitality sector world-wide. The company’s hotels business responded with agility to tap alternate customer cohorts and garner new revenue streams. The segment revenue for FY22 doubled and segment PBIT turned positive in the second half of FY22. The resurgent trend in domestic tourism, MICE and banqueting highlight the immense opportunities for trusted brands like ITC Hotels in a post pandemic era.

 “Your company’s implementation of the asset-right strategy, together with strategic interventions in recent years, investments in digital technologies and pursuit of alternate structures in line with industry recovery dynamics, position it well to scale the next horizon of growth,” he said.

The company has launched nine hotels in FY22 and has a healthy pipeline of new properties which will be opened over the next few quarters. It plans to shortly unveil ITC Narmada, its signature property in Ahmedabad.