Non-Cigarette Sales Account for 60% of ITC's Gross Revenue

As it transitioned from a tobacco company to a diversified business conglomerate, ITC now derives more than 60% of its gross revenue from non-cigarette segments, up from around 48% five years ago. However, operating profit has not kept pace with growth, with non-cigarette segments accounting for 19 percent of total revenue at the end of the last fiscal year, up from around 14 percent in 2017-18.

According to Amnish Aggarwal, head of research at Prabhudas Lilladher, cigarette is a high margin business, and as its share declines, so will its profit contribution. And, even if the other businesses grow, their profit contribution will be limited because their margins are lower than those of the cigarette industry.

“Non-cigarette business’s Ebit (earnings before interest and taxes) contribution has increased from 14% to 19% during the period (FY18-FY22). The government had increased taxes during the period. If the excise duty on cigarette goes up, then gross revenue also increases for the cigarette business. Now, if I look at cigarette contribution to net sales, then over the same period that has actually come down from around 42% to around 34%. That means it has come down by 8%, where as non-cigarette contribution to Ebit has gone up by around 5%,” said Aggarwal.

During the fourth quarter of the previous fiscal year, the diversified conglomerate's Ebit margin for the cigarette business was 74.2 percent, while that for non-cigarette FMCG was 5.7 percent. During the fourth quarter of FY22, Ebit margins for the cigarette and non-cigarette FMCG businesses increased by approximately 80 basis points (bps) and 60 bps, respectively. Significantly, the company has increased its non-cigarette FMCG Ebitda margin by 650 basis points over the last five years.