Digital brands, premium FMCG to drive ITC's growth ambitions
Amid challenges in its cigarettes business, ITC is focusing on expanding its non-cigarette offerings. The FMCG segment has shown significant growth, leading to an improved product mix and margins. Digital-first brands such as Yoga Bar and Prasuma have also reported strong revenue increases. The paperboard and agri businesses are benefiting from rising demand and exports of value-added products.
ITC, the Indian conglomerate, is looking to diversify its growth beyond its traditional cigarette business due to increasing pressure from taxation and commodity inflation. The company's September-quarter performance indicated that its non-cigarette businesses, including FMCG, paperboards, agri products, and digital-first brands, played a crucial role in cushioning the impact.
FMCG emerged as the strongest growth driver, with the segment's margin expanding by over 50 basis points year-on-year despite inflationary pressures. Digital-first brands like Yoga Bar, Prasuma, and Mother Sparsh showed robust growth, posting a 70% year-on-year increase and contributing a combined annual revenue of more than ₹1,800 crore.
The paper business also showed momentum due to improved demand and the integration of Century Pulp & Paper. Analysts believe that ITC's scaling up of digital-first brands and the fresh foods portfolio will significantly contribute to earnings growth. Religare Broking has rated ITC stock with a 'buy' rating and a target price of ₹408, suggesting a 46% upside from its current closing price of ₹279.7. The stock's trailing P/E multiple of 18.2 is below its five-year average of 26.
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