Indian cigarette giant ITC bets on tobacco even as it touts ESG push

India’s largest tobacco company is building on the growth of its cigarette business, even as it promotes its environmental, social and governmental standards to attract investors who are scared of the industry.

ITC sought to diversify beyond cigarettes, and expanded into everything from fast-moving consumer goods and technology products to hotels. But cigarettes make up a third of revenue and 80% of pre-tax and interest profits at a 112-year-old company and ITC expects the market to expand as consumers switch to alternative cigarettes like chewing tobacco.

ITC Chairman Sanjib Puri said in an interview with the Financial Times that the company would expand its core business while promoting “responsible capitalism” and ESG-compliant practices.

“We will continue to invest and strengthen the market position” in cigarettes, Puri said, alongside its alternative businesses.

But Vaishakhi Mallik, co-director of Vital Strategies, a public health campaign group, rejected the argument that cigarette companies could be considered viable.

Tobacco kills more than a million people a year in India, she said, and despite “trying to convince the public, investors and governments that they are changing for the better… It is still an industry that harms health and the environment.”

ITC’s largest shareholder is British American Tobacco, with almost 30% of the shares, and the Indian company reported revenue of Rs 158.6 billion ($ 2 billion) and profit after tax of Rs 41.6 billion in the quarter ended December.

ITC’s diversification program reflects the strategies taken by global tobacco groups to avoid being blacklisted by investors even when they depend on the high profitability of cigarettes. It also highlights the paradox that cigarette companies can enjoy a high ESG rating for making supply chains more environmentally friendly despite the health damage caused by their core products.

Marlboro maker Philip Morris International says its long-term ambition is to do so To rest Her cigarette business. Swedish Match, a registered company in Stockholm that specializes in the non-smoking tobacco product SnoozeAnnounced in September that it plans to turn its cigar business around and become “non-smoking.”

ITC faces unique challenges. A ban on e-cigarettes in India means it is unable to diversify into reduced risk segments such as vaporization, as its international counterparts have done.

“ITC is in a very difficult situation because of the environment in which they operate,” said Eric Bloomquist, a consultant to the global tobacco industry.

But the company achieves a double A rating in the MSCI ESG index, which is relatively high among large Indian corporations. Puri said the company is positive for carbon, meaning it has absorbed more CO2 than it emits, arguing that there is a developing consensus among investors that companies should be judged by how they “shift” instead of moving away from portfolios. “This is an evolution that is happening,” he said.

India has the second largest number of tobacco consumers in the world, some 270 million adults, according to the World Health Organization’s World Tobacco Survey. But ITC says less than 10% smoke over-the-counter cigarettes, and the rest consume smuggled cigarettes, chewing tobacco or beedisTobacco rolled in her husband’s hand.

Puri also told investors in December that ITC had planned to “maximize the potential of the cigarette industry within the tobacco basket,” but its non-tobacco businesses would grow faster. He did not rule out splitting the business, saying it “could be an alternative model in the future, and we are quite open and flexible to it”.

But investors have not yet been convinced Tobacco companies can be part of the ESG portfolio.

ITC shares have risen 15% since the end of February, as investors estimated it was cheap. But foreign institutional holdings in the stock have fallen nearly half to about 10% since 2017, according to Motilal Oswal. “There is no substantial reduction in his dependence” on cigarettes, they mediated.

Indian cigarette giant ITC bets on tobacco even as it touts ESG push Source link Indian cigarette giant ITC bets on tobacco even as it touts ESG push

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