Why Am I Bullish On ITC Ltd.?

The tobacco giant sells 80% of legal cigarettes in India. When compared with British Tobacco or Altria Group, they have better brands and more products of course, and they are present in more countries than ITC. Anyway, while cigarettes volumes are going down and hopefully that is a good thing for society in long term, but ITC is not restricted within tobacco products. This is going to be a post on why I am bullish on ITC stock price?

While I thought their hotel business will be a growth business, but post corona virus pandemic, I think hotel business will not be a growth business anytime soon. But the FMCG and food processing. Think about potato chips, you probably need to spend 20 rs in making those chips and you sell for more than 100rs. That means a huge profit margin business.

As ITC sources vegetables directly from farmer, I think their margins will be good. But, the risk is, they need to establish brands. I have tried their package food, ITC masterchef and I must say, I was not impressed, Haldiram frozen is better than ITC. There are already established players in food processing, but ITC has a big open market to explore. I see lately their protfolio is growing, problem is I did not like the taste of these foods, but the busy schedule of professionals give me hope to be bullish on ITC business of frozen or packaged foods.

In FMCG, ITC has done excellent job in developing product and branding. But, I feel their supply chain or distribution could be better so the products would be available everywhere. I expect the margin to go up, going forward. But, FMCG business has a large competition from other great businesses, even the retailers like Future group, spencer, Amazon, Patanjali, everyone is in the race. While India itself is a huge market, but to be honest it is still potentially a huge market and people need to come to middle class level to increase the market size. However, I am optimistic about FMCG profitability and food processes. While tobacco business would remain a cash cow, they should shut down their retailing stores, I visited Wills Lifestyle and it sucked. Considering ITC has partnered with Amway and purchased Sunrise, which is big in Kolkata. Being a cash flow positive and debt free company. I think this coronavirus pandemic will bring more acquisition options to ITC, those might generate growth.

The future of ITC stock price will largely depend on what they do with their hotel business, IT business and FMCG business. If they spin off their non-productive capital intensive businesses and increase profit margin and sales in FMCG, then I do reason to be bullish on ITC. The ITC dividend yield is high, but one should not really invest just because of that. I think some businesses like Agri, FMCG, tobacco, paper etc will do great and that is why I am bullish of future of ITC.