For ITC, a bigger opportunity in fast-moving consumer foods

Between January and September, ITC generated Rs17,100 crore in fast-moving consumer goods, or FMCG, sales, show data from NielsenIQ. Britannia reported sales of Rs16,700 crore, followed by Adani Wilmar at Rs15,900 crore, Parle Products at Rs14,800 crore, Mondelez at Rs13,800 crore, and Hindustan Unilever Ltd at Rs12,200 crore.

ITC had been in fourth position in the corresponding year-earlier period. Adani Wilmar was at the top.

NielsenIQ’s data underscores substantial growth in the overall food FMCG category, primarily driven by snacks, food products, and packaged groceries. Within the food segment, modern trade contributions reveal Nestle at the forefront with 18.8% share, trailed by HUL at 15.9%, Mondelez at 14.2%, ITC at 12.2%, and Adani Wilmar at 11.3%. 

This reflects the competitive dynamics and market share positioning within the food FMCG sector. 

ITC capitalised on the surge in atta, or wheat flour, prices, with its Aashirvaad-branded packaged atta continuing to be the chief revenue driver for its food business. Consequently, the augmentation of total revenues was propelled by value growth rather than sheer volume expansion. Credit goes to ITC for its rapid expansion across a diverse product portfolio, earning the distinction of the fastest-growing consumer goods company in the food sector. This achievement is underscored by the introduction of more than 100 food FMCG products annually, significantly enhancing ITC’s standing in the industry. 

Slippery oil (prices)

A pivotal market determinant in ITC’s outperformance over Adani Wilmar was the notable downturn in edible oil prices. Edible oil prices, after reaching a high of $2,000 per tonne in April-May 2022, underwent a significant decline, plummeting below $1,000 per tonne by September. 

This price volatility underscores the potential influence on the financial performance of major players in the edible oil sector. Between January and September, Adani Wilmar, whose portfolio has a larger presence in food oil, especially with its Fortune brand, experienced a consequential impact on its revenue. 

ITC had divested its Andhra Pradesh-based edible oil plant to Adani Wilmar about two decades ago, and concurrently also sold its controlling stake in ITC Agro Tech, its former food business subsidiary, to ConAgra Foods (now Conagra Brands) in the United States. 

Recent market chatter and media reports suggest that ITC may be contemplating a strategic re-entry into the edible oil business. Speculation centres on ITC’s interest in acquiring Adani’s 43.97% stake in Adani Wilmar as it seeks to fortify its position in the burgeoning branded commodities sector.

The acquisition, if it happens, would enable ITC to broaden its footprint in the branded edible oil segment, presenting a strategic move to bolster competitiveness against Reliance Consumer Products Ltd’s FMCG brand, Independence. This brand competes directly with Adani Wilmar in edible oil, grains, and pulses, while also challenging ITC in the packaged atta and biscuits segments. 

A strategic move

Market chatter about the Adani group’s potential divestment of its 43.97% stake in the joint venture with Wilmar group values the potential sale at $2.5-3 billion. If ITC is serious in its bid, this hypothetical scenario could yield a higher exit premium for the Adani group, as ITC seeks to consolidate its presence in the edible oil business.

The competitive landscape in branded commodities has witnessed a notable shift from unbranded to branded products in recent years, prompting both national and regional players to enhance their market presence in this fast-growing space. This potential strategic move by ITC could showcase its aggression to capitalise on evolving market trends and strengthen its position in key segments. 

At the company’s annual general meeting in August, ITC’s chairman and managing director Sanjiv Puri said that the company’s FMCG business had built a portfolio of mega brands, with innovation and digitalisation “driving premiumisation as well as penetration-led growth".

He added: “In a relatively short span of time, ITC has built a portfolio of 25-plus vibrant brands in the FMCG Businesses."

A larger FMCG play

Even so, in response to escalating brand competition, ITC would want to augment its production capacity and diversify its product line within the FMCG segment. Given its substantial enterprise size and scale, sustained innovation in the form of new product offerings across various dimensions is expected. 

This necessitates not only leveraging its robust distribution network but also maintaining an active mergers and acquisitions strategy to secure strategic production capacity assets and established FMCG brands in various domestic market segments.  

The other question is, can ITC grow its other food line–snacks and biscuits–faster than now to increase market share and value-growth in those categories? As a moat for its enterprise valuation, a larger FMCG play will do good to ITC.  

Recognised as resilient stocks, FMCG equities exhibit resilience to economic downturns, given the sustained consumer demand for essential items irrespective of prevailing economic conditions. 

The appeal of FMCG stocks lies in their capacity to attract investors seeking stability and enduring demand despite economic cycles. This underscores the importance of ITC’s commitment to expanding its presence and holding onto its leadership in the FMCG landscape.  

Dr. Srinath Sridharan is a policy researcher and corporate adviser. (X : @ssmumbai ) 

This column is not an investment advice.