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Long-term Investors to Gain from ITC's FMCG Thrust
The Economic Times - 20 Jun 2013

While the cigarettes business is currently the major growth driver for ITC, - the company's aggressive expansion in the non-cigarette FMCG segment is going to set the growth trajectory for the company in the coming decade.

From staples and branded garments to confectionery, snacks and personal products, the cash-rich company is using the cash flows generated from the cigarettes business to foray into a range of FMCG categories.

In the March quarter, ITC managed to achieve break-even in the FMCG segment. It now plans to enter new segments such as dairy and oral care - thereby encompassing all major product segments in the consumer goods industry.

ITC is also tactically placed to leverage its existing strengths to make inroads into highly competitive categories. It has a strong distribution network and the linkages with the modern trade channel and good rural penetration, thanks to e-Choupal. ITC's aggressive expansion in the FMCG sector and its foray into most segments such as personal products, packaged foods have intensified competition for both multinational and local players. The current slowdown in other segments such as hotels and paper is a major concern. The FMCG business, while larger than its other segments, is still relatively smaller in size than the cigarettes business.

ITC earned over Rs.7, 000 crore from FMCG in FY13, while revenue from the cigarettes business was Rs.  26,000 crore. However, at 23%, FMCG has been growing at nearly twice the CAGR at which the cigarette business has grown in the past five fiscal years. At this pace of growth, it will take 17 fiscal years for the FMCG business to overtake the size of its cigarette business.

ITC's weightage in the Sensex has tripled from 5% in 2008 to 16.5% now. Its m- cap has grown at a CAGR of 26% in the past five years. For investors, ITC is a long-term bet as it makes the transition from a predominantly cigarettes player to a FMCG major over the next decade.

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