ITC has this great cash engine called Tobacco. I dug a little bit into the published 2015 results to see how ITC was using its cash.
There is good news and bad news. Bad news — Cash from Cigarettes which generated ~180%+ ROC is being used to fund FMCG and Hotels business where if the ROC is ~1% in 2015. 90% of the additional capital in ITC went into FMCG or the Hotels business. While one might argue that FMCG will make money in the long run, the hotels choice is a bizarre one as it is cyclical and a low return business. Also, they paid 500 Crores for a property in Goa that is being challenged in the courts right now. Was 2015 an anomaly on how much capital went to hotels or will this be a trend? While one might hope a more prudent allocation in the future, it is something one definitely must be concerned about. Also, a clear road to profitability on FMCG will help as well. Good News — 700 Crores out of the 1,500 Crores that were invested came from other parts of the balance sheet like deferred taxes, better TWC etc. Essentially only 900 Crores or 10% of net profit went into capital for in all FMCG and Hotels. Glass half full or half empty?
|All Numbers in Crores INR|
|ITC Last 12 Month Net Profit||9765|
|Owners Earnings Before Capex||10792|
|Net of Dividends||5171|
|Additional Capital Employed||% of Capital Employed||2014-2015 ROC of Segments|
|Capital Employed in Cigarettes||121||8%||183%|
|Capital Employed in FMCG||632||40%||0.8%|
|Capital Employed in Hotels||769||48%||1.1%|
|Capital Employed in Agri||-79||-5%||44.1%|
|Capital Employed in Papers||110||7%||17.0%|
|Capital Employed in Others||41||3%||32.6%|
|Total Capital Into Business||1594||31%|
|Net Capital Left After Investing in Business||3577|
|Additional Cash in Balance Sheet Compared to 2014||4299||Additional cash coming in from better Deferred Taxes, TWC, Cash Management etc;|