Interviewer to candidate: What’s your patience level?
Candidate: I’m an investor in ITC.
Interviewer: (Offering the job) How much salary will you take to join?
That’s the gist of a Hinglish meme inspired by Bollywood movie ‘3 Idiots’ cited in a blog called Alpha Ideas. Countless other versions on social media target the cigarettes-to-hotels conglomerate. The reason—ITC Ltd.’s stock has lagged when rest of the market has scaled new records.
ITC has no debt, no litigation and a 77% share of the cigarette market. There are no challengers as e-cigarettes are banned and entry barriers for new players are high because of restrictions on foreign direct investment. Yet, it continues to disappoint.
Cigarettes are the cash-flow engine at ITC, driving its operating income and margins. And cash from the tobacco business is used to reward shareholders. Yet, this business is also suppressing shareholder returns
In the last one year, ITC rose nearly 34.7%, underperforming Nifty 50 and BSE FMCG Index. In the last two years, Nifty rose 27.7% but ITC tumbled 27.8%.
That’s prompted demand from institutions and investors to unlock shareholder value by spinning off the cigarette business. A news report said the company is considering a plan to create three entities through a demerger.
A demerger may also allow BAT, its largest shareholder with 29% ownership, to cash out on non-cigarette business. Other shareholders include Life Insurance Corporation of India Ltd. and SUUTI, through which the government owns sake in the cigarette maker.
ITC, in its filing to exchanges, however called demerger reports “speculative”. The company, in its response to BloombergQuint’s emailed queries, said the current structure has benefits of “synergy in the form of access to ITC’s balance sheet to scale up verticals profitably”.