ITC: “Will”(s) “Gold Flake” assist “Ashirwad” to win “Bingo!”?

On FMCG

1. LTM Margin is 6.1%
2. HUL is at 22%, Nestle is at 19%, PGHH at 18%, Colgate at 26%, and Gillette at 19%
3. Marico at 17%, Britannia at 15%, Dabur at 17% and Godrej at 17%

But ITC is a new player and doesn’t have scale –

ITC is not a new player in FMCG and has been around for a very long time – Aashirwaad was launched in 2002.
ITC Others FMCG sales for LTM are 18000cr – larger than all of those companies other than Hindustan Unilever.

But ITC is investing for growth –

FY17-FY22 growth was 8.7% growth (but Covid…)
If I compare FY18 to FY23 (9M Ann.), growth is 10.7%
The median company in the comp set grew sales at 10% with an average EBITDA Margin of 22% and a ROCE of 50%.

I take EBITDA because i think OPM in screener refers to the EBITDA margin. ITC’s 5yr EBITDA margin is closer to sub 5%

But ITC doesn’t have MNC decades-old brands and parent’s R&D + A&P –

MNCs pay a royalty to the parent for that privilege (and that is already deducted in the margin above)
The Indian Cos don’t have those advantages and the margins are pretty high.

But you exclude Adani Wilmar –

AWL is primarily an edible oils business (I think edible oils generates all the profits and is inherently a low-margin business)
It is growing much faster with an aggressive strategy (like most other Adani cos) and diversifying rapidly.

To conclude,
No, I do not think FMCG is some wunderkind where management has batted a century.
Maybe the terminal scaled margins of ITC FMCG are lower than the others, but not 10%, I think the potential could very well be in the mid-teens.