Arjun Badola

Itc itd :gold flake, a godfather for their fmcg segment

Disclaimer: I am not a SEBI registered adviser. All the information provided by me are for educational/informational purposes only.

Before you start reading, if you are thinking about ‘morality’ about the stock I would suggest you to check out a thread started by me on Here is the link for it (Click Here). About the Company

ITC limited is an Indian multinational conglomerate company headquartered in Kolkata. It was established in 1910. ITC is divided into five segments: Cigarettes, Fast-moving Consumer Goods (FMCG), Agriculture, Paperboard & Packaging, Hotels & Hospitality and IT.

Sanjiv Puri is the Chairman & Managing Director of the company. ITC has no promoters so there is not much to discuss.


  1. They have a very strong distribution network. Look at it like this, Cigarette shops generally keep biscuits with them. Therefore, using their cigarette distribution network they can boost their network of biscuit. Distribution reach of ITC is around 6 million outlets in India. Even Dabur doesn’t have such reach.
  2. ITC is sitting on a cash cow. Their cigarette business has developed to a stage that it requires very less capex and just prints money!
  3. Huge Brand Image: Their FMCG brands have achieved impressive market standing in a relatively short span of time. Aashirvaad is No. 1 in Branded Atta, Classmate is No. 1 in Notebooks, Sunfeast is No. 1 in the Cream Biscuits segment, YiPPee! is No. 2 in Noodles, Bingo! is No. 2 in Snack foods, Engage is No. 2 in Deodorants and Mangaldeep is No. 2 in Agarbattis.
  4. After building good brands company is using such brand images for entering different segments and launching their products. For example: Aashirvaad brand has now entered into the dairy business.
  5. Control over raw materials: ITC has its own agriculture sector which provides them with raw material which tells us that they can have control over raw material for FMGC products and control the margins in future. For example in their paper segment, company purchases wood directly from farmers of India.
  6. One of their Moat is also their architecture. This Moat develops with the company has good relationship with its employed, supplies, etc. This is created as ITC buys directly from the Indian farmers and through their E-Choupal platform it would ease the process plus attract other farmers also.
  7. ITC is so cash rich that they can easily afford to advertise very intensely. ITC has also started to advertise through YouTube channels. I was just watching one random video on YouTube and that was sponsored by BINGO!
  8. ITC has a very strong Trade Marketing & Distribution with covering one lakh markets and covering six million retail outlets. Also, ITC works closely with e-commerce website to increase their online presence.
  9. Even after lockdown company was able to quickly recover and started their production cycle. If you see the manufacturing dates of ITC products which were selling in the market their manufacturing date will be quite recent one.
  10. It is a clear leader with being the largest player in the market in the segment of Value Added Paperboards. It is basically does packaging for other comapnies. Their clients include Colgate, Radico Khaitan, etc. Further their packaging segment also helps them to source their own packing of products.
  11. Being so cash rich gives company to buyout its competitor which helps them in expanding like they did with Sunrise Foods.
  12. Just for your information, even Domino’s Chilli Flakes & Oregano is manufactured by ITC. [During the Lockdown ITC had also partner with domino’s where Domino’s had agreed to dilver essential items made by ITC] This is not it they have also partnered with Swiggy & Amway.


  1. Huge growth opportunity for other FMGC products as free cash will start to increase once the margins in FMCG segment goes up.
  2. In the long run their FMCG segment might have negative working capital as its common for FMCG companies. They receive payments for their goods first and pay later to the suppliers.
  3. They have changed in strategy of hotel business. Now they also deal with managed properties. but hotel contributes for only around 3%, so it wont impact much.
  4. Legal tobacco consumption market is around only 10% of the real consumption. This can also be an opportunity as even though the legal market is slowly reducing government is very aware of it. If people start purchasing illegal cigarettes it will be a huge loss for them as tobacco is of the important source of revenue for government. Therefore, Government would take steps to shift the demand to legal market as they would be hugely benefited.


  1. Legal cigarettes market tobacco consumption in the country has declined from 21% in 1981- 82 to 9% against global average of 90%. Further, government’s such strict policy on legal cigarettes continues to lower its market share and increase demand of other lightly taxed/tax-evaded forms of tobacco products.
  2. Legal tobacco consumption is only 10% rest lies with illegal consumption which includes illegal imports of cigarettes.
  3. Very low margins in FMCG segments and functions on low margins. Also it requires huge capex for things like adverting. further there is huge competition in this sector.
  4. Their Paperboard, Paper & Packaging segment got affected due to ASEAN Free Trade Agreement which provides zero import duty. Therefore, bringing in cheap Chinese imports.


I believe what gives ITC an edge over other FMGC companies is their cigarette sector. It works as a cash cow and money generated from there is used for growth of other sectors. The Cigarette business sits there like a godfather who is going to provide huge support for their FMCG business which no other FMCG company could do.

Lets look at a quote by Warren Buffett to see how interesting cigarette businesses are:

“I’ll tell you why I like the cigarette business. It costs a penny to make. Sell it for a dollar. It’s addictive. And there’s fantastic brand loyalty.” - Warren Buffett

Much part of the FMCG race is won by distribution network. That is being available at every store. To do so, company must have huge cash with it and ITC has huge pile of cash not only as cash and bank balance but also in the form of liquid funds which are current assets, investments, etc.

ITC is a company which is self reliant. They have their own tobacco farms, they do their own packaging, they produce all their raw materials themselves for their FMCG sector. This can help the company having good margins even at low prices. Further they have hotel sector to push sales or launch new products into the market.

Inshort, ITC is currently in a gestation period for their other FMCG segment. They have a cash cow (their tobacco business) which will fuel their other sectors. Soon as their investments in other segments starts paying off the company would start seeing its wonderful days.