The ITC investor meet last week did get a lot eyeballs. After all, it was the first time the staid cigarette maker had tried out something like this. The investor meet was an example of a fabulous chance to reach out to investors wasted.
Art of saying nothing
It is said that silence is golden, but that does not apply to investor meets. Here, the key is communicating effectively. Even before the investor meet, there was a mountain of expectations. At the investor meet, the management of ITC spent hours talking generic stuff but did not divulge anything about specific challenges facing the company. In short, ITC said nothing of note at the meet and that left investors disappointed.
A huge valuation gap
Less than 3 years ago, in Mar-19, ITC had a market cap of Rs.3.65 trillion and HUVR market cap was Rs.3.64 trillion. The pandemic put a big focus on health and hygiene. Today, HUVR has a MCAP of Rs.5.30 trillion while ITC market cap is half of HUVR at Rs.2.66 trillion. This is despite the fact that the annual profits of ITC are twice the profits of Hindustan Unilever and the dividend yield of ITC is also much higher. Clearly, HUVR has played the post-pandemic game much more effectively that ITC has done. The investor meet was expected to address this dichotomy and explain to investors the strategy for ITC and way forward.
Ask any broker and the standard answer is that ITC is a value buy. That is lazy research, but it underlines expectations that were built around the investor meet. For starters, markets expected clarity on when ITC planned to hive off the FMCG and hotels as separate units. The ITC top management offered little clarity on that front, expect saying that the company was open to the idea of hiving off FMCG and hotels from ITC. On the subject of listing its Infotech unit the company said that it was exploring the idea. That was as ambiguous as you could get and did not help matters.
Future of cigarettes
ITC wants to be valued and viewed like a FMCG company but cigarettes still drive 85% of its profits. That is what is the core issue. Globally, cigarettes are a dipping business and demand has been falling drastically. The respiratory risks highlighted by the pandemic has only made this trend shift more distinct. Under these circumstances, it does not give investors too much confidence when bulk of the bottom line still comes from the cigarette business. The best ITC could have done in its investor meet is to chart out how it will use the cash flows from cigarettes to build its other businesses. It may not change overnight but a timetable would have helped. As we speak, recently listed D-Mart has got the better of the ITC market cap!