Can ITC milk the dairy market?

Written By Unknown on Senin, 01 September 2014 | 23.25

But long worried about the low-margin returns of the FMCG business, analysts will likely keep a wary eye on the new foray.

Moneycontrol Bureau

Conglomerate  ITC is planning to enter the lucrative dairy market, much of which is currently unorganized while the organized market is dominated by players such as Amul, Nestle, Gowardhan and Brittania.

According to a report in the Business Standard , the hotels-to-tobacco major plans to set up plants in six players and plans to become a pan-India player in the sector.

The move is part of the diversification strategy ITC started a little over a decade ago when cigarettes were its core business.
 
Before this, the company's last move was to venture into the FMCG business. The move came after regulatory concerns over tobacco products were seen to be increasing.

However, cigarettes continue to account for nearly half of the company's consolidated sales and almost all of its net profits.

This shows that the company continues to earn a high profit margin on its tobacco businesses despite the increasingly high amount that has been levied on it in recent years.

Over the years, several analysts have questioned ITC's decision to diversify into other lower-return businesses even as it continues to do well in its core cigarettes business.

Recently, company chairman YC Deveshwar defended the move and said it had established strong brands in the FMCG segment and that its aim was to become the country's number-one player in the business by 2030 with revenues of Rs 1 lakh crore.

He had also then said that the company would eventually look to enter the dairy, fruit juices, tea, coffee and chocolates divisions.

In a 2012 interview, Deveshwar had said ITC would spend about Rs 25,000 crore over the next five-seven years to power its growth in these segments.

But long worried about the low-margin returns of the FMCG business, analysts will likely keep a wary eye on the new foray.

ITC stock price

On August 22, 2014, ITC closed at Rs 350.30, down Rs 4.85, or 1.37 percent. The 52-week high of the share was Rs 386.75 and the 52-week low was Rs 293.50.


The company's trailing 12-month (TTM) EPS was at Rs 11.40 per share as per the quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 30.73. The latest book value of the company is Rs 32.97 per share. At current value, the price-to-book value of the company is 10.62.


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