Mumbai: The cigarette-major ITC''s strategy of de-risking itself by entering into non-tobacco business is paying off. The Calcutta-based company''s non-tobacco businesses like paperboard, hotels and FMCG are showing significant improvement in performance.
For instance, the profitability of the company''s paperboard business has improved further. Paperboard business has shown major improvement in Q1FY05 due to increase in sales mix and exports. Its value-added segment has been growing at 20 per cent against the market growth of 8 per cent and ITC has been able to gain an increased share in the value-added segment. It is expected that the profitability of the segment is likely to improve further due to brownfield expansion at Bhadrachalam, commencing in the next three-four months.
Also, the hotels division is showing major improvement as the hospitality industry is in boom phase. ITC hotels is expected to announce the second phase of its expansion soon.
The Lower Parel property in Mumbai is getting ready for a soft launch in January 2005. The company is likely to announce the second phase of expansion in hotels across cities such as Bangalore, Chennai and Hyderabad. ITC already owns prime properties in Bangalore and Chennai. Despite the expansion of hotels, the company''s overall annual capex is likely to be restricted to Rs600 crore.
The recovery in the hospitality industry, which started from FY04, is likely to sustain for the next five years and would lead to a further increase in the average room rents.
The company is expecting that its non-cigarette FMCG business will achieve breakeven by FY07. In the non-cigarette FMCG business, biscuits and packaged atta (flour) have done exceedingly well. ITC has emerged as the market leader in packaged atta, with its share in the category moving above 20 per cent.
Aided by strong growth in atta (wheat flour) and biscuits, the non-cigarette FMCG business is likely to nearly double its revenues in FY2005. The management expects this segment, which incurred loss of Rs170 crore in FY2004, to achieve breakeven over the next two-three years.
The company is trying to leverage its rural distribution strength through various models.
Apart from e-choupal, it has started a mall in a small town as a pilot project.