It is time to really transform the agriculture sector – ITC

Update on the Indian Equity Market:

On Wednesday, NIFTY closed above 10,000 at 10,061 (-0.83%). Top gainers in NIFTY50 were M&M (+5.4%), Bajaj Finance (+3.2%) and Kotak Bank (+3.1%). The top losers were Zee (-2%), NTPC (-1.9%) and Infratel (-1.9%). Top sectoral gainer was PSU BANK (+5.2%), REALTY (+3.1%) and BANK (+2.0%) and sectoral losers were IT (-0.4%), and METAL (-0.2%).

Excerpts of an interview with Mr Sanjeev Puri, chairman & MD-ITC Ltd with Livemint dated 2^nd June 2020:

• We need to really accelerate the economic growth in areas that create large livelihoods. There is no other sector in India, like agriculture, where nearly 50% of the livelihoods are engaged in. India needs to really transform the agriculture sector.
• Government has moved to amend the nearly six-decade-old Essential Commodities Act to bring better price realization for farmers and to attract investments into the farm sector.
• The government has laid the foundation for some transformative reforms, by providing alternative market access to farmers and the modification to the Essential Commodities Act.
• These are powerful tools, which over time, will bring the buyers and sellers of agri-produce close and enable a lot of collaboration.
• More competitive value chains in the farm sector and investments in food processing will ensure enormous job opportunities.
• He believes that India needs to go the whole hog on value addition there, need to improve the productivity of the agriculture value chains, we need to create a strong ‘phygital’ (a physical and digital) system to empower the farmers and connect them to markets.
• By creating a very competitive value chain, with a lot of focus on value addition, India will be able to take a bigger share of the global trade in food processing and agriculture.
• Agriculture is nearly half of India’s workforce. However, the quality of earnings there is definitely on the lower side. They actually need to improve the quality of earnings by improvement in productivity, in the quality of produce, get into pesticide-free production, get into organics, get into horticulture, which raises the incomes. They need to move forward as far as processing is concerned and add a lot of value to agri produce.
• The central/state governments and the industry need to work together to bring the migrant labourers back from their villages.
• Corporates themselves are under pressure during this time of the pandemic, because of the stalling of economic activities. This is the time when they have to show enormous amounts of compassion.

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

• The closing price of ITC Ltd was ₹ 197/- as of 3^rd June 2020.  It traded at 16x/ 14x the consensus earnings estimate of ₹ 12.1/ 13.8 for FY21E/22E respectively.
• The consensus price target of ITC Ltd is ₹ 237/- which trades at 17x the earnings estimate for FY22E of ₹8/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”