Indian insurance companies and Special Undertaking of UTI owns 32% of ITC Ltd. (see shareholding pattern). In comparison the promoters of ITC Ltd namely Britich American Tobacco (BAT) owns about 30.4%.
It is quite contradiction of sorts that the Government which is making smoking more and more difficult is owning such a large chunk of a cigarette manufacturer. No doubt ITC does a few other things but almost all of its profits come from cigarettes.
Cigarette smoking has been shrinking in the US and most of the developed world for the last three decades. See the following graphs
There are no indicators to show that we wont be part of that trend soon. Current sales and volume growth shows slow down in cigarette consumption. If the government decides to be proactive, we could hasten these changes. This company trades at a lofty 32 times earnings.
As the following TABLE shows most of the profits are from Cigarettes.
The nation also needs money for various important needs such as recapitalizing banks, creating infrastructure etc.
It makes eminent business sense to sell ITC shares to BAT. This will gather about Rs 90000 crores in the coffers of LIC, GIC and subsidiaries and the Special undertaking of UTI which could be used more productively. The funds received by LIC could be used to buy shares of PSUs which could be off loaded by the Government to LIC making it a backdoor divestment.
And perhaps a portion of the proceeds could be used to fund campaigns on Television and Social media to reduce cigarette consumption too !
It is quite contradiction of sorts that the Government which is making smoking more and more difficult is owning such a large chunk of a cigarette manufacturer. No doubt ITC does a few other things but almost all of its profits come from cigarettes.
Cigarette smoking has been shrinking in the US and most of the developed world for the last three decades. See the following graphs
There are no indicators to show that we wont be part of that trend soon. Current sales and volume growth shows slow down in cigarette consumption. If the government decides to be proactive, we could hasten these changes. This company trades at a lofty 32 times earnings.
As the following TABLE shows most of the profits are from Cigarettes.
The nation also needs money for various important needs such as recapitalizing banks, creating infrastructure etc.
It makes eminent business sense to sell ITC shares to BAT. This will gather about Rs 90000 crores in the coffers of LIC, GIC and subsidiaries and the Special undertaking of UTI which could be used more productively. The funds received by LIC could be used to buy shares of PSUs which could be off loaded by the Government to LIC making it a backdoor divestment.
And perhaps a portion of the proceeds could be used to fund campaigns on Television and Social media to reduce cigarette consumption too !
Good thought..but do u feel ITC still gets its profits on cigarettes..its better to dis invest in companies where we have a contradiction of social values...and the amount received by sales can be used for better purposes
ReplyDeleteMost profits are from cigarettes.
DeleteI do not have the figures. The Cigarette Business still contributes a larger chunk of profit - more than the 50% mark. The Government - States & Central get huge tax revenue from the farming stage to the sale of Tobacco Dust !
ReplyDeleteThe 'Other' Businesses - all put together employs more people. It would be interesting if one digs out the past - when BAT 'skipped' the Rights Issue and the same went into the Indian Market. The same BAT tried later to 'Raid' ITC when the same share holders stood by the Indian Management and thwarted that 'bid'.
On a serious note do you think BAT will be interested to 'take over'? What will be the Public reaction? [ not the one like the BSNL Staff objecting to the dilution of the PSU's holding]
Please see the updated blog for the Table on profits . 80% of the profits are from Cigarettes. Balance is mainly from agribusiness and paperboards. The FMCG business makes no profits even after a long time in existence. BAT made a mistake is skipping the rights issues. BAT will be interested in taking it over as MNCs don't like to be in the passenger seat. Perhaps they may not be keen at this valuation but if this is what they will get they may take it.
ReplyDeleteThis is very educational content and written well for a change. It's nice to see that some people still understand how to write a quality post! บุหรี่ไฟฟ้า
ReplyDelete