Mumbai
The battle lines are drawn between HLL and ITC for supremacy in the war for market capitalisation among FMCG companies.
Riding high on better valuations, ITC has overtaken HLL's market capitalisation of Rs 31,600 crore by around Rs 1,000 crore (at Rs 32,695 crore) as of Tuesday.
Earlier too, the company had overtaken HLL's capitalisation by around 5% in Aug-Sep '04.
Analysts say ITC continues to command pricing power in its core business, unlike HLL that is facing tremendous pricing pressure.
ITC derives 95% of its profitability from cigarettes and has been investing heavily in its new businesses like foods and hotels. On the other hand, HLL has been preoccupied with protecting its turf from competition.
ITC's increase in market capitalisation reflects the rise in its share price, which is up 40% to Rs 1,318 on Tuesday, compared to end June '04, while HLL's share price has risen by about 13% to Rs 143 in the same period.
ITC's valuation has improved, with its P/E levels now comparing well with HLL's valuation of 23 times. A year ago, it was trading at a P/E of around 15 times. ITC is viewed as a FMCG stock that has managed to sustain growth in its core business of cigarettes, from where it derives most of its FMCG revenues.
ITC has a 65% market share in cigarettes and has not faced excise duty hikes for two yeas in a row. Analyst say ITC has been successful in tapping the large majority of rural India, locked into the vicious cycle of low income-low expenditure.
"ITC's eChoupal initiative ploughs back a larger share of the consumer spend to the farmer. Coupled with the distribution processes tailored to meet the needs of consumers at the bottom of the economic pyramid, the eChoupal assets turn into a competitive & modern marketing infrastructure for rural India," said an analyst.
HLL's number one position has weakened due to stiff competition in its key markets. The past six trading sessions have seen ITC take the lead over HLL, and on Monday ITC's market capitalisation was higher by 3.4% at Rs 32,697 crore, compared to HLL's Rs 31,620 crore.
The big question is whether ITC holds on to its No. 1 position in the months to come. In the past six months, there have been times when ITC has crossed HLL in market capitalisation, only to concede the top spot later. This happened in early August '04, after which ITC maintained its lead till early October '04, after which HLL raced ahead. Since then, there have been sporadic periods when ITC has spurted ahead.
ITC had already overtaken HLL on the net profit front in March '04 quarter. The price cuts in detergents and shampoos, and their adverse effect on its bottom lines has ensured that there is status quo on that front. In the quarter ended September '04, HLL's net profit at Rs 324 crore is lower, compared to ITC's Rs 486 crore net profit.
ITC's hotels business is now being seen as a division that is contributing to topline and profits, rather than something that is requiring huge amounts of capital. In addition, its diversification into various FMCG products, though incurring losses, has seen it achieve some degree of success in gaining market share in segments like 'atta' and biscuits, where others have tried but not succeeded.
Two years of being spared from excise duty hikes has also given it cushion to growth, without hiking prices excessively, which it has used sparingly to spur revenue growth in cigarettes.
A benign excise duty regime has meant that over the years, ITC has managed to hike prices in small measure without affecting consumer demand. In the second quarter ended September '04, both sales and profits were up by about 14%.