The June quarter earnings of the conglomerate, however, demonstrated that there may be another subsidiary that ought to be on investors’ radar going ahead.
ITC Infotech, a wholly-owned subsidiary of the company, has raised some eyebrows with the sharp surge in its revenue growth and profitability over the past two years and the benefits it is reaping from change in management.
In the quarter ended June, the information technology subsidiary reported a 21 per cent growth in revenues to Rs 696 crore and a 79 per cent rise in operating profit to Rs 196 crore. ITC Infotech’s annual operating profit has risen nearly five-fold since 2018-19, while its net profit has climbed over five-fold in the same period.
“In addition to the rising profitability of FMCG, improvement in IT is notable, and can offer incremental upsides,” said brokerage firm
Services in a recent note.
With major Indian IT sector companies proclaiming the dawn of a new age for the sector led by digital transformational deals, cloud computing, artificial intelligence and software-as-service, ITC Infotech has a tailwind to continue its double-digit growth trajectory.
It is likely that the IT venture of the cigarette manufacturer could end up being its fastest growing subsidiary and another means to lower the dependence on the tobacco business.
Brokerage firm
says even in 2022-23, the cigarette business will command 82 per cent of the conglomerate’s operating profit as compared to 85 per cent in 2019-20.
ITC itself is realizing the rising profile of the information technology arm within the conglomerate as is evident from the dedication of two pages to the subsidiary in the June quarter investor presentation. The same subsidiary found no mention in past investor presentations or earnings press releases of the company.
“The company will continue to focus on expanding its presence in strategic accounts, creating and winning large transformation opportunities, sharpening its domain-specific digital solutions across identified,” ITC said of its subsidiary in the annual report for 2020-21.
Brokerage Kotak Institutional Equities has assigned a value of Rs 10 per share to the IT subsidiary of ITC. At a price-to-earnings multiple of 27 times past 12-month earnings, it is valued at a steep discount of 20-25 per cent to its peers in the IT sector that is likely to narrow as it outperforms the sector going ahead.
ITC Infotech contributed merely 5 per cent to ITC’s overall operating profit in the June quarter, but if the aggressiveness of the new management bears dividend, the non-cigarette FMCG business won’t be the only growth engine in ITC’s wagon.
