ITC: Business Model, Earnings, Promoter Details and Shareholding Pattern

ITC Business Model: A Diversified Approach

ITC Limited, established in 1910 as the Imperial Tobacco Company of India, has evolved from a single-product tobacco company into a multi-business conglomerate. Headquartered in Kolkata, India, ITC operates five primary business segments: FMCG Cigarettes, FMCG Others, Hotels, Paperboards and Packaging, and Agri-Business. This diversification strategy allows the company to mitigate risks associated with dependence on a single revenue stream while tapping into varied market opportunities.

1. FMCG Cigarettes

The cigarette business remains ITC’s largest revenue contributor, accounting for approximately 42% of its revenue in H1 FY25 (April–September 2024). ITC holds an 80% market share in India’s organized cigarette market, offering brands such as Gold Flake, Classic, Wills Navy Cut, and Insignia. This segment is highly profitable, contributing around 78% to the company’s profit before interest and tax (PBIT). Revenue generation relies on a combination of volume sales and pricing power, supported by a relatively stable tax environment in recent years. However, the segment faces challenges from regulatory pressures and shifting consumer preferences toward healthier alternatives.

2. FMCG Others

The non-cigarette FMCG segment includes branded packaged foods, personal care products, stationery, and matches. Key brands include Aashirvaad (atta), Sunfeast (biscuits), Bingo! (snacks), and Classmate (stationery). This segment targets India’s growing consumer market, leveraging ITC’s extensive distribution network of over 6 million retail outlets. While revenue has grown steadily—7–8% annually over the past five years—profitability remains lower than the cigarette business due to high marketing costs and competition from established players like Hindustan Unilever and Nestlé.

3. Hotels

ITC’s hotel division operates luxury properties under brands like ITC Hotels, WelcomHotel, and Fortune. With over 120 properties across India, this segment caters to both business and leisure travelers. Revenue comes from room bookings, food and beverage sales, and event hosting. The business has seen recovery post-pandemic, driven by domestic tourism and corporate travel, though it remains capital-intensive with moderate margins compared to FMCG.

4. Paperboards, Paper, and Packaging

This segment serves industries requiring specialty paper, packaging materials, and graphic boards. ITC’s integrated operations, including its own pulp manufacturing, provide cost advantages. Clients include FMCG companies, publishers, and exporters. Revenue growth is tied to industrial demand, with sustainability initiatives like recyclable packaging gaining traction. The segment contributes steadily to ITC’s topline but is less profit-intensive than cigarettes.

5. Agri-Business

ITC’s agri-business focuses on sourcing and trading commodities like wheat, rice, soya, and coffee, while also supporting its FMCG supply chain. The e-Choupal initiative, a digital platform connecting farmers to markets, enhances efficiency and reach. Revenue depends on commodity prices and export demand, making it sensitive to global market fluctuations. In Q3 FY25, rising input costs for leaf tobacco and other agri-commodities impacted margins.

Operational Strategy

ITC’s business model emphasizes vertical integration, cost efficiency, and a strong distribution network. The company invests in R&D to innovate products, particularly in FMCG and sustainability-focused packaging. Its revenue is geographically concentrated in India, though exports (e.g., agri-commodities and cigarettes) provide some diversification. The model balances high-margin legacy businesses (cigarettes) with growth-oriented segments (FMCG Others, hotels), though the latter require significant capital and time to scale profitability.

Q3 FY25 Earnings: Financial Performance Overview

ITC released its Q3 FY25 financial results on January 29, 2025, covering the October–December 2024 period. This quarter is typically weaker due to seasonality, but it provides insights into the company’s resilience amid economic and regulatory challenges. Below is a detailed breakdown based on available data as of April 5, 2025.

Revenue

• Total Revenue: ₹19,771 crore, up 3.5% year-on-year (YoY) from ₹19,107 crore in Q3 FY24.
• Segment-wise:
  • Cigarettes: Revenue grew 6% YoY to approximately ₹8,300 crore, driven by a 2–3% volume increase and stable pricing. A benign tax regime supported this growth.
  • FMCG Others: Revenue rose 8% YoY to ₹5,200 crore, reflecting festive season demand for snacks and staples, though margins remained under pressure from raw material inflation.
  • Hotels: Revenue increased 12% YoY to ₹900 crore, buoyed by higher occupancy rates and average room rates (ARR).
  • Paperboards and Packaging: Flat at ₹2,100 crore, impacted by subdued industrial demand.
  • Agri-Business: Revenue declined 5% YoY to ₹3,271 crore due to lower export volumes and commodity price volatility.

Profitability

• Net Profit: ₹5,010 crore, down 2% YoY from ₹5,112 crore in Q3 FY24. The decline was attributed to higher input costs and a one-time tax adjustment.
• EBITDA: ₹6,450 crore, up 4% YoY, with an EBITDA margin of 32.6% (vs. 32.4% in Q3 FY24). Cost optimization efforts offset some inflationary pressures.
• Earnings Per Share (EPS): ₹4.01, compared to ₹4.10 in Q3 FY24.

Key Metrics

• Operating Margin: Maintained at 25–26%, within ITC’s FY25 guidance of 25–27%.
• Dividend: An interim dividend of ₹6.50 per share was declared, consistent with ITC’s high payout policy (around 90% of profits).
• Debt: ITC remains virtually debt-free, with a cash reserve of ₹22,000 crore as of December 2024.

Observations

The cigarette segment’s steady growth provided stability, while the hotels business benefited from a tourism uptick. However, agri-business faced headwinds from cost escalation, and FMCG Others struggled with profitability despite revenue gains. Analysts noted that ITC’s performance was in line with expectations, though muted consumer spending and raw material inflation remain concerns for FY25’s second half.