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ITC targets Rs65,000 crore revenue from packaged foods division by 2030

LiveMint logoLiveMint 20-09-2017 Sounak Mitra

New Delhi: ITC Ltd, the Kolkata-based cigarette-to-noodles maker, has set an internal target of generating Rs65,000 crore from packaged foods by 2030 to reach its goal of Rs1-trillion revenue from non-cigarette packaged goods by that time.

“ITC’s foods division will be a significant contributor to our goal of achieving Rs1,00,000 crore turnover from the new FMCG businesses by 2030. Our vision is to contribute at least 65% of this turnover,” said Hemant Malik, divisional chief executive (foods), ITC.

According to ITC, its branded packaged food business crossed Rs8,000 crore in the fiscal year ended 31 March 2017 (FY17).

Now, it wants to garner Rs65,000 crore by selling branded packaged food—from Re1 candies to Rs1,000 chocolate boxes, over the next 13 years.

While the number may seem ambitious, ITC’s target may be achievable if it grows at a compounded annual growth rate of 17.49% (in food business) consistently over next 13 years. During the past 13 years, packaged food company Britannia Industries Ltd has grown at a CAGR of 17.48% and Nestle India Ltd has grown at 11.01%. ITC has grown faster at 17.97% during the past 13 years, but that includes its revenue from cigarettes, according to data from BSE. Yet, the number (target revenue from food business by 2030) is almost double ITC’s revenue from its core cigarette business in the year to 31 March 2017. The company reported its revenue from cigarettes at Rs34,001.98 crore and total revenue at Rs55,001.69 crore, according to filings with BSE. Branded packaged food is a relatively new business for the company. It ventured into the food business in 2001—90 years after it started selling tobacco products in India—as part of diversification to slowly reduce dependence on tobacco. To speed up growth of its branded packaged food business, Malik said the company will enhance its portfolio in the existing categories, expand into adjacent areas, tap new food categories and try to create new ones.

“In two years, we’ll become the largest packaged food company in India,” he added. According to the company, currently its branded packaged food business is the third largest after Parle Products Pvt. Ltd and Britannia Industries Ltd. Growth in the branded packaged food business will be fuelled by the company’s entry into fruit, vegetables and sea food, adding one new product every quarter.

“Besides snacks, which is a huge opportunity, there’s dairy and we’ll also look at impulse segments like mass-market chocolates. We’ll have a wide portfolio in staples as a category, and we are exploring health-based products,” said Malik.

“Riding on a very strong sourcing mechanism, robust logistics and supply chain management, and favourable economies of scale, our product development team ensures that the atta we offer to customers is of the most superior quality. With the help of the agri-business, we are working on developing new wheat growing regions, closer to the point of manufacturing and closer to markets to ensure delivery of the freshest product,” he said.

To micro-target consumers, ITC has started crafting regional variants across the foods portfolio to cater to local preferences.

It has recently developed blended spices under the ITC Master Chef brand specially for the southern region. Earlier this month, ITC chief executive Sanjiv Puri had outlined the importance of branded food business the “new ITC” that the current management is creating based on an eight-point strategy, Mint reported on 12 September.

Among ITC’s existing portfolio of packaged food products, Ashirvaad atta (wheat flour) is the highest revenue earner at Rs3,500 crore, followed by biscuits brand Sunfeast, which crossed Rs3,000 crore.

To ensure its products reach consumers as fresh as possible, the company is building 20 integrated factories for consumer goods with logistics facilities, and has lined up an investment of Rs25,000 crore in 65 projects. Three of the planned factories will be operational this year, and four more over the next one year.

“Such facilities will reduce wastage from multiple handling and transportation by co-locating manufacturing and distribution facilities. This will substantially enhance supply-chain efficiency and ensure freshness of products,” said Malik.

Malik also said the company still needs to strengthen reach in the rural areas. “This needs to be worked out,” he added.

At present, ITC products reach around 5.8 million of the estimated 10 million retail outlets in India. Of this, ITC’s direct reach is limited to around two million shops.

In a recent note, brokerage firm Jefferies estimated 11% earnings per share (compounded annual growth rate) over FY2017-20.

“Other FMCG businesses have seen healthy performance from packaged foods brands such as Sunfeast, Aashirvad, Bingo and Yippee, while personal care categories have been subdued. We remain positive on foods and stationery part of the portfolio. However, a slew of new launches like juices, dairy, chocolates, etc., and personal care losses would limit segment margin expansion potential,” Jefferies said in a note on 6 September.

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