Saturday, August 30, 2008


Since FMCG companies are expected to be major beneficiaries of the growth in rural incomes it makes sense to focus on those companies which look to conciously increase their rural footprint. ITC is one such company in my opinion. In this post, I shall concentrate on the business prospects only and ignore the financials.

ITC operates in various segments and has a diversified product profile.
1. Hotels
Personal Care
Education and Stationery
Safety Matches
3. Paper Boards and Packaging
4. Information Technology
5. Agri Business
Agri commodities
Leaf Tobacco

Out of the above businesses, FMCG and Agri Business would provide a major thrust in the rural space thus benefiting form the agricultural and rural boom.

The FMCG business has products in various segments and at various price points providing a vast choice to consumers from every strata of society. The distribution reach is already there due to their cigarette network with pan wallas and other small vendors. Therefore ITC can effectively leverage this reach to enhance the availability of its other FMCG products like soaps, personal care products, Bingo and other food products. Again with increase in income, consumers in the rural space could migrate from beedis to cigarettes providing additional revenues.

The Company's 'e-Choupal' initiative is enabling Indian agriculture significantly enhance its competitiveness by empowering Indian farmers through the power of the Internet. This transformational strategy, which has already become the subject matter of a case study at Harvard Business School, is expected to progressively create for ITC a huge rural distribution infrastructure, significantly enhancing the Company's marketing reach. e-Choupal reduces transaction costs through elimination of middle men and ensures that farmers get optimum realisations for their produce. This link with the farmers is beneficial for ITC, since it provides a continuous stable source of inputs for its various businesses like agri exports where it is a major player and its foods business like biscuits, chips and atta. Also ITC's retail stores get a captive buyer base from this segment of farmers who come to e-Choupal to transact their business.

The above factors put ITC in an enviable position to capitalise on the boom in the agricultural sector and since the stock is reasonably priced at current levels, the case for investment into it is all the more stronger. Investors with a 3 year horizon can look to buy the stock.


Uma said...

I was into ITC till recently. FMCG sure saved their investors a few heart attacks in the way the markets have been behaving lately.

Uma said...

mahendra, remember that article you did on fund managers? I saw this on marketwatch and immediately I thought of you!

Mahendra Naik said...

Hi Uma,

I too am holding a lot of ITC stock, but the value will be unlocked over a period of time. I think with such a diverse range of products, it will be able to weather lean cycles easily.

I went through that article on marketwatch and found it quite interesting. Thanks.

By the way my articles are appearing on DNA Money newspaper. I wonder if you get it in Pune.



I think anything food related looks good here.