Photo: Bloomberg

Photo: Bloomberg

ITC expects food business growth to slow in FY13

ITC expects food business growth to slow in FY13

Mumbai: Diversified ITC Ltd , expects growth in its food business to slow in the coming fiscal year, as continued inflation in key raw materials and sluggish consumer buying are expected to hurt volumes, a top official said.

The Kolkata-based company, estimates its food business to grow 12-13% in the next financial year that begins 1 April, from 14-15% expected this year, Chitranjan Dar, chief executive, foods, told Reuters in a telephonic interview on Wednesday.

Photo: Bloomberg

“Growth for us will be driven by biscuits and the snacks segment. But the pace of growth may not be what it has been in the past couple of years," Dar said.

ITC sells popular brands such as Sunfeast biscuits, Bingo range of snacks, Aashirvaad branded staples and confectionaries such as candies under the brands Mint-o-Fresh and Candyman.

The company is the largest cigarette maker in India. It also makes consumer products and runs hotels.

A recent government move to have some consumer products in standard package sizes, from 1 July, if implemented, is also expected to hurt volumes.

Companies now sell products at popular price points and the grammage is altered by companies, as an alternate to a price increase, to protect margins.

“A lot of categories we anticipate will have a problem in gaining volumes as people are familiar with the price points and make purchases depending on that... the category which will be most impacted will be biscuits," Dar said.

Price Rise Across Categories

ITC, with a market cap of $29.9 billion, plans to take gradual price hikes in the coming fiscal year, Dar said.

“It will have to be a gradual kind of price increase. It may or may not be more than this and that will depend on the dollar-rupee parity. But at the moment, this is how much we plan to take," Dar said.

India’s food price index declined for the first time in nearly six years In late December as costs of pulses and vegetables fell.

However, prices of key inputs such as edible oil, continue to remain due to higher global prices, while prices for cereals are seen rising by 7-8% during the course of the year due to a higher minimum support price (MSP), Dar said.

MSP is the minimum price of procurement mandated by the government to protect interests of farmers.

Wheat, sugar, edible oil, potatoes -- the key raw materials, make up nearly 60% of the cost of the business, which operates under ready-to-eat, staples, confectionary and snacks.

Analysts, who track the company, have expressed concern about the margins in the food business being below 5%, which is below the industry standards of 5-10%.

In the food category, the company competes with the likes of long established players such as India’s largest consumer goods maker Hindustan Unilever, Nestle India Ltd, Britannia Industries and the Parle Group.

“We are working on improving margins. We most certainly have plans of taking it up to match industry standards," Dar said.

Improving efficiencies in supply chain, growing market share and raising prices will be part of the company’s strategy, Dar said.

ITC, which currently runs 40 factories across India, also plans to put up 7-8 factories in FY13 at an investment of around one billion rupees.

“The idea is to reduce cost and the factories will come up at locations where we find a demand-supply mismatch," Dar said.

“Many of them are third party operations and so the remaining investment will come from third party investors," he said.

Shares of the company have risen 15% in 2011, outpacing the FMCG index which has risen 9.5%.

The stock closed down 0.9% at Rs203.30 in a choppy Mumbai market.