A slew of health and wellness products to be rolled out soon: ITC

Update on the Indian Equity Market:

On Wednesday, NIFTY ended down 33 pts (-0.3%) at 9,881 as investors remained cautious amid geo-political tensions between India and China at the Ladakh border. Further, a steady rise in Covid-19 cases, both in India and globally, also dented investor sentiment.
Among the sectoral indices, MEDIA (+1.7%), AUTO (+0.8%) and REALTY (+0.8%) were among the gainers while FIN SERVICE (-0.8%), METAL (-0.8%) and FMCG (-0.5%) were among the top losers.
Among the stocks, MARUTI (+4.1%), BHARTIARTL (+3.4%) and WIPRO (+2.5%) were the top gainers. INFRATEL (-4.5%), KOTAKBANK (-2.3%) and ITC (-2.2%) were the top losers.

Mr B Sumant, Executive director of ITC, in an interview said the company has always been ‘vocal for local’, and has introduced products designed in India, sourced in India and made in India. Here are the excerpts of the interview with Business Standard dated 17th June,2020:

• On capacity utilization rate, he said ITC is meeting market demand for its products. The way they design their factories – the ‘Make in India’ Integrated Consumer Goods Manufacturing and Logistics (ICML) facilities that are spread across the country, it is for the long term. So, they always keep enough extra reserve capacity in all plants.
• There were many challenges when they started the operations, but now they have adapted with agility to the new ways of working which includes adhering to all social distancing and hygiene norms. ITC had to realign all its operations adjusting to the new normal.
• Food sales have seen a gradual evolution during the pandemic. The first phase of the lockdown was all about consumers stocking essential products, including staples and spices. Then, people realized that this was going to continue for a while and products like biscuits and noodles started selling. Then over time, consumers also went on to buy discretionary food products like snacks and chocolates. Now, people realise that the current situation is here to stay for a while so normal consumption is progressively being resumed. A lot of do it-yourself products are getting preference as people are trying to recreate the experience of a restaurant at home.
• ITC has launched a range of innovative products in the health and hygiene space during lockdown:
o They witnessed demand for surface cleaning and came up with the Savlon disinfectant spray, which was created in a record time.
o Nimwash, a fruit and vegetable cleaning product.
o Savlon Wipes, another product suiting the times and designed for convenience.
o 50 paise Savlon sachet, taking the sanitizer to the masses.
o B Natural + in association with Amway, where a natural immunity building ingredient was included.
• ITC is also working on a range of products where clinical trials are going on. There is a pipeline of health and wellness products that will be rolled out going forward.
• When asked about any thought regarding change in rural strategy with the changing landmark, he replied that ITC’S multi-pronged presence and engagement with rural areas is quite extensive and an area that receives significant strategic consideration. Given that the recent reforms can give new wings to the critical food processing sector, ITC’S continuing farmer engagements, agri-linkages, distribution reach and initiatives are well poised to respond to the emerging demand impulses. ITC has been focusing on expanding our presence in the rural markets even before the pandemic.
• When asked how sunrise would add value to Ashirvad, he said that Spices is a local business — every locality, every state and every province have their own taste and flavor preferences. Sunrise is very popular in the east — it has got a wide range of products.
• ITC has always been vocal for local. Over the years, they have invested extensively in developing a vibrant portfolio of world class Indian brands which support millions of farmers and creates largescale livelihoods in the country. A bouquet of 25 Indian vibrant brands have been created from scratch. As a relatively late entrant into FMCG, they were up against all the global giants. But ITC went extra lengths to bring in differentiated products and are proudly Indian because all their world-class products are designed in India, sourced in India and made in India with Indian R&D capabilities.
• As a part of their “Nation First” philosophy, ITC focus on domestic procurements, unless circumstances compel to do otherwise. For Fabelle, for example, the chocolate comes from Madagascar because India is not a chocolate growing country. The ingredient is grown only in certain parts of the world. A majority of ITC’S brands anchor domestic agri value chains and create largescale livelihoods. B Natural, ITC’S fruit juices and beverage brand sources fruits directly from Indian farmers instead of importing concentrates. Also, its notebook brand Classmate sources pulp through largescale forestry programmes. Similarly, ITC’S Mangaldeep brand of agarbattis supports indigenous bamboo value chains, instead of importing raw agarbattis.

Consensus Estimate: (Source: market screener, investing.com websites)

• The closing price of ITC was ₹ 181/- as of 17-Jun-20. It traded at 15.8x/13.9x the consensus EPS estimate of ₹ 11.9/13.5 for FY21E/ FY22E respectively.
• The consensus target price of ₹ 235/- implies a PE multiple of 17.4x on FY22E EPS of ₹ 13.5/-.

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