Amidst the disruptions caused by COVID, the diversified business conglomerate ITC appears to have set an aggressive expansion of its fast-moving consumer goods (FMCG) business, with Chairman Sanjiv Puri clearly defining the segment as the key driver of growth for the group, focusing on new products, bold acquisitions, and high-octane marketing.
Puri, who completed a year in office as the Chairman of the company, has not shied away from making clear the company’s intent to shed its traditionalist approach to acquisitions in the FMCG room, which may well hold indications of what may come.
It announced the decision to acquire spice maker Sunrise Foods Pvt, based in Kolkata, in May. Ltd (SFPL), viewed as part of a broader strategy to improve its role in the highly competitive FMCG market in the country, dominated by large corporations like Hindustan Unilever Limited (HUL) and several local players in various regional geographies.
The acquisition, which was completed in July, involved buying out Sunrise Foods Private Ltd (SFPL) on a cash-free, debt-free basis in an upfront all-cash valuation of Rs 2,150 crore. SFPL is a family-owned company based in Kolkata, primarily engaged in the spice market, and this acquisition will help ITC expand its portfolio in the segment where it is present with its brand Ashirwad, whose spices are popular in both Telangana and Andra Pradesh.
Sunrise is a market leader in the fast-growing segment of spices in eastern India and has a brand history of more than 70 years. A disaggregated review points to a strategic shift towards FMCG in recent years.
The latest FMCG businesses’ earnings before interest, depreciation, taxes, and amortization (EBIDTA) have more than doubled in three years – from Rs 456 crores in 2017-18 to Rs 914 crores in 2019-20.Over eight years, the EBIDTA segment for FMCG Businesses multiplied from Rs 44 crores in 2012-13, one year before Puri became President of the FMCG group, to Rs 914 crores in 2019-20, galloping at a compounded annual growth rate ( CAGR) of 54 percent.
The analyst said ITC’s food business, which is the third-largest, was rapidly narrowing the gap, with some players like Aashirvaad (Rs 6,000 crore), Sunfeast (Rs 4,000 crore), Bingo (Rs 2,700 crore), and YiPPee (Rs 1,300 crore) achieving significant value and scale.
The restructuring of the lifestyle retailing business with the sale of the John Players brand is all measures to improve the FMCG segments’ profitability, Mr. Puri said.