Monday, October 5, 2020

10 Blunders - 1 Arrogant Company - Millions of Shareholders Suffering (The story of ITC)

 

Dear Board Members,

As a minority shareholder while I sift thru the 368 page Annual Report (AR) of my company, it seems and appears to be a manifesto of a large political party that is proud of what its done in the past and what it hopes to do even if nothing sounds or appears to be value accretive for the shareholders. 

Markets are wise and perceptions are strong and the 1.5 million investors who have reposed their faith and trust in you, seem to be losing the confidence in Your leadership. Else ITC that was once the most respected company wouldn’t have performed so miserably on the bourses inspite of the 368 page chest thumping manifesto.

I must say you are failing miserably while sitting in the comfort of your mahogany and leather lined offices, a mutual appreciation club of 14 people presiding over an annual revenue of over 50,000 Crores each one building large personal empires thru generous grant of stock options and over the top compansation while I am seeing my wealth erode by the hour.

ARE YOU ANSWERABLE?

The unbridled power that you wield without being questioned by a real promoter / entrepreneur has spelt a real disaster as I fear that my company is being taken on the same self destruct path that General Electric, Nokia, Blackberry and Exxon Mobil have been taken in the last 2 decades and the less said the better as to how value destructive this journey has been for them because there was no one to shake up Jack Welch at the right time (he became the greater God without being one). For way too long these companies and their respective managements suffered from Hubris not able to see a fast approaching train while being frozen on tracks, not able to course correct - eventually leading to their demise. 

While I will ask some specific questions, the crux of this note is that if you cannot protect my wealth thru the alleged magic of your strategy and leadership – You don’t have the moral right to hold these positions and lead my company.

ARE YOU ANSWERABLE?

The First Blunder 

The biggest blunder of diversifying into hospitality and continue to burn cash and capital in this black hole using cash generated by the cigarette business (which is the only meaningful cash flow division) is nothing short of financial hara-kiri on minority shareholders. You have acted no differently than most of real estate developers who want to own a hotel / hotel chain from their free cash flows because its sexy to own one when it’s the most unprofitable industry and most susceptible to economic mood swings. 'Dala Bhukara' is fine – I appreciate it and love it too, You should have stopped at that, but then it was simply stupid to burn thousands of crores of my money by assuming that every hotel will be as successful as dal bhukara. I would like You to share with the public – Who is advising you to spend thousands of crores of shareholder wealth to build these large hotels (and overspending on most of these).

Who (employee or consultants) is regurgitating on excel sheets - the potential of new hotels and how are these people made accountable? The AR must include a detailed P&L and BS of each of my subsidiaries hereafter clearly mentioning the ROCE on a quarterly basis.

At Rs.17.9 lacs revenue per room per annum of revenue you have missed the bus of being any formidable hospitality brand even while you can't stop gloating on all the award and accolades that the hotel division has got. Mind You - most of these are all subscription based awards (awards and accolades is a paid international scam at the cost of the hospitality industry) the sooner we realize this the sooner we will stop burning cash. I would like to know how much money has been burnt in annual subscription of these awards.

ITC Grand Bharat with 104 keys is generating a mere revenue of 28 Cr p.a, that’s is lesser than some successful Lemon Tree Hotels on a revenue per key per annum basis.

It is pertinent to ask what’s the spend per key of all the hotels that have been built grounds-up in the last 10 years. If it is anything more than 2 Cr per key (all in) there is something dramatically wrong with our projects team and financial forecasters. How many hotels have performed in line with approved financials from the time of board sanction of these projects within the next 5 years. This is an important analysis that You should seek and make the same public.

ARE YOU ANSWERABLE?

The entire rigmarole of Fortune Hotels with 4000 rooms is generating a mere profit of 2.76 Cr – who is responsible for this and why is this abysmal performance being tolerated at my cost?

Welcome Heritage does a NP of  a mere 40 lacs with 36 hotels , 900 rooms and the management bandwidth at my cost.

Which international brand / concept are we benchmarking ourselves against to justify our investment in the business and which of my employees has his/her skin in the game in this business and how is the executive compensation tied to the performance of the Hotel Division.

ARE YOU ANSWERABLE?

The Second Blunder

Small irrelevant businesses that we have ventured into must be taking immense bandwidth and time (board meetings, audits, finalization of accounts, consolidation) why are we in the businesses such as Antrang Finance that generates a mere 6 lacs a year. I would like to know the details of every business / subsidiary that generates less than 50 Cr of NP after taxes. In the scheme of things and larger objectives there should be a board resolution passed that defines / disallows continuity, if certain thresholds aren’t met by any subsidiary.

The Third and Series of Blunders

Our acquisition history and parameters are abysmal. That eeks of internal misjudgements. I might not need to tell you that a series of these judgemental calls, gone wrong with alarming regularity, might be perceived to be fraud. Nimyle, B Natural, Savlon – have you ever calculated the price paid for acquiring these businesses and the value accretion/destruction that these businesses are doing for me. Your endeavor to build on these brands might be noble but the subsequent performance is abysmal.

Enron wasn’t a fraud at the beginning , But they lost their way alongside because they didn’t know when and where to diversify and how to wisely allocate capital and burnt cash and rapidly eroded shareholder wealth. Don’t take my company down that path or history will find it difficult to forgive You.

When I read about the ITC Sangeet Research Academy I couldn’t stop laughing for 5 minutes. The cacophony of the music of frustration is still ringing in my brain. While I would like to know the total cumulative annual spend in this musical initiative since 1977, I kept wondering that the music for all the gurus and the budding musicians is playing fine while the music for the shareholders is dimming with an alarming speed or might already have stopped a few years ago. What a paradox..

BECAUSE YOU ARE ANSWERABLE

The Fourth Blunder

The FMCG division launched in 2000 generates just 3-5% PBT, thats a meagre 6% segment ROE (vs >35% of other FMCG players) – put Your hand on your heart is this justified. The QOQ and YOY narrative, propagated by You that 'we are becoming a global FMCG brand' is fine – how is it value accretive for me – because our operational performance is miles short of our competitors.

Are our employees lackadaisical and suffering from sloth because they don’t have a real BOSS or there is something drastically wrong with our strategy and execution. How have we benchmarked ourselves against the top 5 competing FMCG companies?

I would like to know if the salary growth of all the people earning over 35 lacs per annum is directly correlated to Revenues and EBIDTA of those divisions and if NO – it tantamounts to the very premise where we begun – My cash business is being used to fund the inefficiencies of the entire company without a credible benchmarking against other brands / businesses that are doing well. How are we different today from an inefficient PSU. 

The so called Dividend Yield is a paradox - How would You justify the same to investors who entered the stock on ~14th July 2017. Yes agreed i am getting some 7-10 Rs a year in dividend while losing a major part of my capital. 

The Fifth Blunder

For a Balance Sheet of my company’s size you have failed repeatedly to disclose Your CAPEX plans and capital allocation plans in advance – isn’t that taking the executive power to a level of unsanctioned discretion? While I am suffering with my capital erosion you guys are building personal empires of reputation and brand building.

ITC Infotech @ 2300 Cr per annum of revenue and single digit PAT must be the most underperforming IT company in the country. Do we take pride in investing businesses that underperform and continue to make the shareholders believe that the future is bright (why has the board not thought of divesting this and all such small divisions) and if NO – what’s the boards commitment on revenues and PAT in the next 5 years for this company.

The Sixth Blunder

You recently acquired Sunrise at approx. 3.7 X the FY 1920 revenues of 591 Cr at a PE of 37.

How does this deal add to my geographical diversification? How is this value accretive to me? And why would you pay this valuation when you aren’t able to sustain a 15 PE for my company? How did the board approve an acquisition at 37 PE while struggling to keep my valuation even at 15 times.

Why could we not expand our own spices division to strategically expand our geographical reach with internal talent and resources and had to go thru the path of an expensive acquisition.

Norway’s food major Orkla acquired Eastern Condiments (almost double the size of Sunrise) at 2.1X Sales and at 18.5X earnings. Which team was responsible for the due diligence of Sunrise and it would be in the interest of the shareholders if the negotiation documents and files are brought out in public domain.

For a minority shareholder watching from a distance, this is nothing short of an internal fraud. If my company is receiving Outstanding Performance Award by CII for its spices, does our management not have the wherewithal and talent to setup and expand our products’ geographical reach rather than paying a hefty premium just to capture a market share.

ARE YOU ANSWERABLE?

The Seventh Blunder

The executive compensation keeps going up and shareholder wealth keeps coming down. It’s a shame that in the last approx. 12 years the revenue has gone up from 16000 Cr to 50000 Cr and the employee cost is almost stagnant at 9% or has marginally inched up. Where is the operational leverage? Where is the demonstration by the management to incrementally and geometrically increase revenue and thereby profitability for every additional crore spend in Executive Compensation?

Some of the most progressive companies on the planet (such has Amazon) have a cap on executive compensation at less than 160000 USD per annum and all additional comp is through stock awards.

Our compensation system acts as a disincentive for executive outperformance and in the absence of a real my-baap of my company, I – THE MINORITY SHAREHOLDER am suffering.

In 12 years the revenues are up approx. 3.12 times and employee cost is up 3.26 times. And most likely the perks, hidden benefits, Pension Plans, Travel Plans, Drivers, Cars, Leave Encashments are not even a part of this metric. I would like a declaration / system – where every penny spent on every employee is a function of CTC that’s declared and filed without any benefit being accrued under any other account head.

Do you – dear Board Members understand the concept of operational leverage?

ARE YOU ANSWERABLE?

The Eighth Blunder

Our stakes in EIH and Leela have a MTM loss of approx. 1250 Cr in just one last FY. What's the rationale in holding onto these investments when we don’t really know how to manage our own hotels in the first place or make them world class by any stretch of financial performance. Not a single rupee should be allowed to be invested in the hospitality business to fund losses or any further CAPEX. And every business balance sheet should fend for itself for its OPEX and CAPEX without dipping into our cash generated from the primary business – Cigarettes.

The Sri Lanka investment of 1800 Crores (~236 M USD) so far, baffles me as a shareholder. And I understand that the project is far from complete. Who are we building this empire for and how will we get our investment back? Do You have a plan besides just an excel sheet to justify this black hole.

ARE YOU ANSWERABLE?

The Ninth Blunder

Our abysmal ability to engage with capital markets / investors / analysts is nothing short of abject neglect (no mybaap syndrome). If you had succeeded in creating any mentionable shareholder value – this attitude is pardonable. But while You are all doing exceptionally well, with your compensation and hefty sitting fees and perks, the lack of investor and market engagement is taking me and my shareholding for a ride. Why cant we have a mature set of professionals who have the knowledge and the art of engaging with investors and the media.

ARE YOU ANSWERABLE?

The Biggest Blunder

You are conducting an average of 41 committee meetings a year. Take out the weekly offs and holidays, You are meeting approx. every 5th day. FOR WHAT? And what are you achieving for me? Except strategically destroying my wealth and value of my shareholding at my cost and charging exorbitant sitting fees? Gentlemen the average age of my board is approx. 65.6 Yrs. God give You all a happy healthy life but don’t treat my company like a retirement resort.

You talk of Triple Bottom Line repeatedly trying to be the 'pallbearer' of goodness – While every section of society gets a mention – the shareholder is left out of that focus - high and dry. If I was on Your mind – You wouldn’t waste a single rupee in reputation management through charity and social activities and alleged multiple bottom-line spiel till the interest of minority shareholder is protected and demonstrably served.

While every corporate house has declared salary cuts in view of the pandemic – there is no evidence of any salary cuts in my company. on the contrary you have recently chosen to reward yourself for destroying shareholder wealth. Is that morally and ethically correct even while the latest Tax filings reveal that our advance tax returns are lower by almost 50%. That portends that the Net Profit is likely to fall dramatically - At whose cost?? – MINE!

Another large conglomerate / business house indulged in empire building, international acquisitions at obnoxious valuations, over leveraging, failed product/car launches all at the cost of minority shareholder and to sate the ego of a few top guys in position of authority and they have reached a precipice of existential crisis.

Its becoming increasingly irritating to be repeatedly reminded through media, about the deep value and future potential of my company under Your leadership – Lets stop behaving like the state that talks of glorious vision in year 2050 (safe distance away) – because by that time none of us will likely be alive. Its not to take the credit away for many good things that are happening in my company but pls remember Good is not Good enough because we need to be Great. I must confess we are far from Great and not even looking in that direction.

Pls get Your act together and don’t allow my company to get to a point of no return. A few more mistakes and a little more neglect – And you would have succeeded in destroying one of the finest companies in the country to a mere HAD BEENS…… Remember markets are unforgiving and it would take no more than a few quarters to get our share-price to double digits.

God Bless You and God bless ITC

A distraught shareholder…………

Co authored with 
Ravi Sharma @caraviusharma ; https://www.linkedin.com/in/ca-ravi-u-sharma-65901b97/
Uday Bhaskar https://www.linkedin.com/in/uday2210/

278 comments:

  1. Replies
    1. Shift HO from laid back Kolkata to Mumbau

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    2. Valid questions raised which requires reconsideration till it's logical end

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    3. Superbly articulated. Very relevant and searching questions. Board needs to respond to build shareholders faith

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    4. Why can't they separate cigarette, Fmcg,hotel business and it business and make each entity individually responsible.?

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    5. Unprofitable keys must be hived off.

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    6. This is a fantastic letter to the ITC management. I am one of the thousands of small stock holders having acquired them and holding them dear to my heart for 3 decades. I am crushed to realize late that my hard earned money is going down the drain may be because of the sagging competence in management of the much respected company

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    7. Well said.If the same trend continues ITC will vanish within next 5 years.

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    8. manu sahib
      even i am a shareholder of itc but only to the extent of the bourses...your blog would be with the board of directors by now....we all would like to have a point by point rebuttal and explanation along with their point of view and vision...infact to embolden the trust of shareholders and general market sentiments the chairman should come out on printmedia and social media platforms to give cofiden...ce

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    9. Whether this great analysis of our friend open the eyes of our directors and raise their ears to listen their mistakes by stepping long foot giving no value of returns to the minority shareholders and think wise and deliver right things to reward atleast now rather thinking for after 10 years as already company has crossed over 60 year still we think our company is young don't think it as retired one pl directors act swiftly

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    10. Except second blunder all are seems correct.

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  2. We valid question from a shareholder's perspective.

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    Replies
    1. Please publish in the News paper so that everybody including SEBI will be aware of this.

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    2. Please publish in the News paper so that everyone will be aware of this.

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    3. To Whomsoever the writer.
      Hold the horses.
      Wait for the bonus.

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    4. Really Eye Opening Debate, & Everything Rightly Pinpointed.

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  3. Oh oh oh my god . Pulling words out of my mind . Fantastic

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  4. Superbly articulated, Manu. Hit the nail on the head

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  5. It is time for awakening. It is high time ITC discards low margin and low value addition business.

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  6. It is time for awakening. It is high time ITC discards low margin and low value addition business.

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  7. ITC must take this insight in right spirit & respond

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    Replies
    1. Most of the top management in ITC are corrupt, worse than some government departments. Don't see any changes in coming days as an current employee.

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    2. It seems all the voices of minority shareholders are falling on deaf ears of old and clueless Board which seems to be nourishing their own interest

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  8. Have u sent it to company?.. A serious note should be taken and replied by itc..great pointers...

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  9. Have u sent it to company?.. A serious note should be taken and replied by itc..great pointers...

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  10. If you have these views,it makes better sense to sell the share and get out.Lot of shareholders seem to have done that.The share value has lost 50% value in the last 5 years

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  11. If you have these views,it makes better sense to sell the share and get out.Lot of shareholders seem to have done that.The share value has lost 50% value in the last 5 years

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  12. Why not act like vyasa Bank and remove all the directors who are not caring for shareholders

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    Replies
    1. Yes. I propose Manu to move a resolution "No confidence on the existing Board" and we should support en masse

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  13. Very well said. There seems to be no bottom in sight

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    Replies
    1. The speed of the boggy is as fast or as slow as the engine. The downward spiral is more pronounced after the demise of YCD

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  14. Diversification from the tobacco business was the need of the hour and non performing / loss aking businesses have been closed down in the past - ITC Classic Finance / Punjab Anand Batteries etc. What stops them doing this now?

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  15. Excellent eye opener. The bear cartel is manipulating this counter since long. Observe daily buy and sell quotes minutely.Stock price is being systematically brought down.This is not possible without getting inside information.And this prudent management never once thought of questioning it.

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  16. I fully agree with you. The management is a sitting duck with who cares attitude .its highly condemnable and questionable.

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  17. You have exposed the so called professional management of ITC. Looks like when you don’t have any accountability you can do anything. ITC management is exactly doing this. Time to change the management through minority shareholders action. Vote for removal of management.

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  18. Well written, I agree with your points

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  19. Didnt go beyond the first few paras

    Cause if the analysis of the hotel business is as rubbish as it was, what further can be expected

    You do realize that Hotel biz reported profits take a big hit under IndAS (effective FY19-20) and do not reflect the economic profits from the biz...

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  20. Excellent article,the board members must not treat this company irresponsibly,get out of the position u hold if u cannot handle the company

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  21. Very nicely written.
    So at the end of day they should make change in themselves.
    Now see what happens in coming weeks.

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    Replies
    1. Very well explained. Very realistic. The concerned executives should be made accountable. They cannot be whiling away the shareholders funds and enjoy at our cost which is highly unethical. The company should be run on professional manner. I wish this reaches all the shareholders of the company

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  22. Sir I appreciate your effort. But I would like to share my interpretation of your data.
    Definitely, in Q1 minimum quantity of cigarettes sold (50% excise duty and ITC own 85% profits dropped) so they didnt pay any advance tax (or please share how much latest advance tac filing) .
    A laid back management/ old age home board - I cant sense this from the market. ITC is more dynamic in product launches.
    OMG, Savlon is a bad acquisition. I think its one of the best acquistion in corporate India with recent launches.
    Why ITC need to acquire spice? ( they failed lot of times with masala spices) . Do you think keralites will change to aashirvad from eastern, tamil from sakthi or aachi, bengali from sunrise?. My question to ITC management why didnt you acquire eaastern? Acquisition cost of 100% company differs from selling part of the company. Moreover sunrise EBITDA is 100 cr and eastern also the same. Revenue sunrise is 595 cr and eastern is 890 cr.
    Hotels: Management face savingly accepted they failed and moved to ASSET right approach. Even I agree its big failure
    ITC manages its companies with its sub-segment head. Board is just for thumb-sucking.
    I dont care about board age etc until they are dynamic in the market. If HUL captured major handwash/sanitiser/disinfectant i would have been the first person to exit by saying its a PSU/Govt company.

    Reasonable queries to ITC management:
    In spice segment: Sambhar powder which they launched 5 years back in tamil nadu disappeared all of sudden. So marketing cost everthing is in drain ( i accept that sakthi/aachi never allowed them to get large market share but cost of failure)
    They gloat themselves we are very close to farmers, dont know why they left pulses besan poha organised segment to TATA sampann.
    Why are u allowing VST/ Godfrey to grab your market share.
    What is R& D for smoke free products ( like phillip morris)

    Like this, I can write lot more.

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  23. I have invested heavily in ITC in last decade and sitting on huge losses. Whereas other fmcg companies like hul, dabur and recent entrant tata consumer are having dream run on stock exchange

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  24. Great article, thanks for highlighting the issues. Is this shared with management

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  25. Awesome Article . Blew my mind . Thanks for putting it together

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  26. Very well written, shows the research you must have done.

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  27. Excellent many important points I had few on my mind but this is kind blowing

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  28. Great article, exposed the incompetent people sitting at the top.i thought ITC is a professional company, but now dream is shattered. Infact iam planning to accumulate the shares, you saved my money. Instead of putting my money, rather i would put it horse race.

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  29. The management seems to be milking it. I think it's about time for a replacement board

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  30. You talk about ITC as if it’s a fly by night company. My family has been shareholders for more than 30 years in this 107 year old professionally managed company, which has performed consistently good. The current fall in stock price is due to ESG investing, and not company performance.
    If you really want to understand the company’s strategies, why don't you meet up with the management?
    As some body else responded, you always have the option to exit if you don’t like the stock.

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    Replies
    1. Even if one is not getting reply to suggestion made to ho how can you expect to meet mgt they dont care only listen to people around them

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  31. Very well articulated conveying the dismay of shareholders.However, the diversification process & forethought is good,given the continuous drive against tobacco,both fiscal & otherwise.However, implementation appears to be sluggish .

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  32. Excellent work, how about giving a good editing and sending this to the majority single shareholder and ask them to consider these valid questions ?

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    Replies
    1. There are no strong shareholders. 29odd% is held by UTI and LIC+govt insurance companies. index funds.

      It's a fantastic article so well articulated, positively shaking the Board to do something.

      Aa noted, it will just take a few quarters of continuing sub-par performance to kill the company

      My Compliments for articulating the points in a most simple manner, leaving no scope for miscommunication

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  33. Well said.Generally individuals go reckless and splurge money when there is lot of cash in hand. But it is not expected from a company managed by very senior and seasoned board members. Nor it is a PSU, where many disastrous investments are forced upon for polirical or social reasons.

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  34. Excellent stuff, perks/field perks of its employees are highest in the industry. I feel great scope to improve there as well.

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  35. Agree with many points. In FMCG business, we find products of new players well distributed. ITC FMCG products are not visible across the stores in many locations.

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  36. Agreed with the points. Next 2-3 quarters if performance is same or down then it's time to take difficult decision by minority share holder

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  37. Agree with many points. In FMCG business, we find products of new players well distributed. ITC FMCG products are not visible across the stores in many locations.

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  38. Apart from the board, is there anywhere else this can be sent as a complaint. Is there any redressal available for minority shareholders like us in any Govt. Body?

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  39. Top management should be removed asap

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  40. what are the options for shareholders?

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  41. Nice post but I think company are trying to generate more cash making businesses unlike companies like nokia and blackberry who stopped thinking about future and innovation. I am bullish on itc not because of cigrettes but for fmcg i think it has huge potential.

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  42. Wow! Simply Wow! Well written.

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  43. Excellent article ,which clears all doubts of now and future's as well.


    You have so much intelligence for annual reports analysis, why don't you write for such article for some of the great companies of future ,going by their presence performances.
    That will be truly valuables to all your admirers and mass as well.

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  44. The company has lost focus, it should shut the hotel, finance, IT business.

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  45. Excellent article ,which clears all doubts of now and future's as well.


    You have so much intelligence for annual reports analysis, why don't you write for such article for some of the great companies of future ,going by their presence performances.
    That will be truly valuables to all your admirers and mass as well.

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  46. My whole perspective on itc is changed after your article. Meticulously crafted article. But I feel the least itc can do is to demerge itc hotel business. ITC really needs to focus on converting revenue to profit in FMCG sector.
    Holding itc since 2017

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  47. Split the fucking COMPANY. Carl Icahn, please help!!!!

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    Replies
    1. Yes, that's who we need here..

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  48. Nice is a pointers.There is a good value accretion logic that's well articulated in frequent disclosures. Unfortunately, a company can't fully divulge is strategy... A judgement call needs to be taken by the investor considering risks for a company that's dominant in each of the business that its participating in & exiting the ones it didn't attend a chance (fashion for e.g).
    Minorty shareholders should only get into investment where there is conviction - else we will be wasting our time whining.

    Good luck with your investing 👍

    Discl: invested in ITC, but not an evangelist of it

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  49. Cudos, well written.hope it reaches the management.

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  50. I was wondering why ITC stock was not performing so well. Now I understand the nitty-gritty of it. It's a fabulous forensic study.

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  51. When millions of share holders are not happy about the shoddiest performance of the so called arrogant company, the company should come out in public and offer their views and possible remedies on the blunders rightly pointed out by the author.

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  52. Valid points from an investors point of view. It is a wakeup call, indeed!

    Board should respond positively, giving honest explanations and their future plans to arrest further erosion!

    The question in the blog viz., "How are we different today from an inefficient PSU?" - summarizes nicely everything.

    ITC may have its own operational problems but the co should spell out to shareholders its bottlenecks instead of covering up and giving a rosy picture.

    I am also a small investor, for information.

    Oct 05,2020

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  53. Paying 37x for Sunrise when you can buyback your own stock at 15X is simply retarded and arrogant.

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  54. The hotel business should be listed as a separate company.It has been a drag for the co.This will improve cos overall profitability and cash.

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  55. We should rather vote against their AGM MOM.

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  56. We should rather vote against their AGM MOM.

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  57. It is truw that ITC BOD & Management team must introspect within, must understand the feeling of stakeholders & decide the business recovery strategies to regain lost GLORY of ITC..

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  58. Excellent article, great insight

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  59. I am really appreciate about your thought and analysis, we are all in same page.. Change of top management very much required..

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  60. I am really appreciate about your thought and analysis, we are all in same page.. Change of top management very much required..

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  61. If anyone can take this to next level. Where ITC management is forced to answer legitimate queries with facts in an open investor forum or con- call?

    Till then whoever likes this article should circulate this in all social media forums so that management comes clean.

    I have also lost heavily by investing in equity shares of this company since last 3 years having averaged at all price levels. Don't know how bad is the actual inside situation. But definitely article is an eye opener.

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  62. An excellent questioning! Why dont the shareholders like u n me raise these by way of asking an extraordinary general body meeting or ask for voting all these issues raised Give wide publicity in the media for this

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  63. WOW. Unbelievable insights and analysis. Very well articulated. I have invested heavily in ITC as its a big belemoth too hard to fail. I wish i had pit same money in Infosys. ITC has ignored the shareholders and management and board is useless. As said in the article they are enriching themselves and not poor shareholders. Blunder after blunder. Today after reading this i really got the insights. Time to book a huge loss and get out.
    Amazing Manu. What a insight!

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  64. WOW. Unbelievable insights and analysis. Very well articulated. I have invested heavily in ITC as its a big belemoth too hard to fail. I wish i had pit same money in Infosys. ITC has ignored the shareholders and management and board is useless. As said in the article they are enriching themselves and not poor shareholders. Blunder after blunder. Today after reading this i really got the insights. Time to book a huge loss and get out.
    Amazing Manu. What a insight!

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  65. Company should take serious note of this article

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  66. Great very deep analysis but don’t know all senior leaders will change and start generating wealth for shareholders

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  67. How is this company afloat then

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  68. No promoters then what you expect from them. It is next ILFS...

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  69. well researched article, hope management will introspect & take suitable remedial action growth,better return for shareholders.

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  70. Sell loss making business and focus on core business then only it creates value for shareholders otherwise it will next ILFS

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  71. It looks some insider from other competitors company's hand in destroying the wealth of most favourable co.

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  72. High time they demerg the business. There are no promoters in the company. Now last thing is govt has a stake which might be sold any time. I thought price kept in this level by brokers to get this stake at a cheap price.

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  73. Like LV Bank, retail investors should not only kick out this corrupt & inefficient management but also demand for investigation by the appropriate authority.

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  74. Excellent insight in to functioning of ITC. It's clear example of non core expansion and diversification for just sake of it. Companies should stick with their core competencies and avoid unnecessary divesrion from the goal of value accretion for the shareholders who are real owners of the company.

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  75. If the board of directors have little shame, they will realise the mistakes they have done and try to rectify.

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  76. Good diagnosis of the patient, hopefully treatment will be good and ITC will strong

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  77. Aghast at the callous attitude & colossal waste of investor wealth.
    Wake up & let the investor confidence rise!

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  78. Perfect analysis ! May this article open the eyes of these sexagenarian and septuagenarian board members who are showing us a dream of great future.

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  79. Are they doing Sangeet Research thing ?! Ridiculous. Like many others I was wondering about declining share price, now I understand. Thanks.

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  80. Excellent analysis. Like Lakshmi Vilas bank, all share holders to throw the directors. Plsend it SEBI, ITC and Corporate Affairs ministry, GOING.

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  81. Haha a share down 50 percent and people start berating manaemt but if you so much trouble with share just click sell button and be away with it... It finally your call and management is not going to answer us retail share holder and second view that keep on buying 50 share per month and hopefully one day you will be in profit... I myself is in loss but this is not only share


    Take a look at hdfc amc.. May be 40 percent from high.. Indusind bank... Hdfc hasn't moved in ages... Sun lupin... Atleast there is no doubt on integrity of management in itc case... Just think of indiabulls edelweiss share holder.

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  82. Thanks for asking asking tough questions. We need to ensure thjs article is read by ITC mngmnt

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  83. It's great question to management let them open their eyes and make company turn around towards stake holders wealth optimisation.

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  84. Totally biased report without Proper knowledge.
    Tabacoo is highly regulated and taxed business.
    ITC is trying to diversfy business.
    Intially you have to burn cash to gain market share.
    Major reason for non performing of ITC stock is tabacoo goods.
    Many major funds dont invest in sin goods realted business.
    As tabacoo is a sin good and highly taxed company is trying to diversfy it revenue.
    This things dont change overnight.
    It take time.
    Revenue front- It is bigger than HUL.
    Profit wise - In top five
    Dividend Yield - More than 5%

    Get your facts clear
    Even reliance gave very less returns from 2008 to 2016.




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  85. A minority share holder has placed facts that are irking his mind with respect to why a company like ITC is going down the gutter.
    Now it is HIGHTIME that the Board comes out and answers the questions raised by him in the PUBLIC in NEWSPAPER.
    A REPORT BE SENT TO ALL SHAREHOLDERS IN PHYSICAL FORM than by email.
    I expect the compliance within a fortnight.

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  86. Today ITC is exactly like the hotels it runs: grand outside and non performing inside. A well researched article.

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  87. Superb article.but wait for this quarter results.there are1230 Cr Shares in all.inspite of giving dividend company should opt for a big buyback.

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  88. Great write up with pointed questions to management

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  89. I think biggest blunder is that if you are still holding the shares.

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  90. Ru really an investor in this company or ru using ur blog to use pump and dump strategy to gain profit or better yet, have already been short selling large chunk of ITC shares and hoping to go down tbe price more !!

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  91. Key executives on board shall take this blog as "SHOW CAUSE NOTICE," which may not be from legal point of view. Come Tuesday 6th October and ITC script...where it will head towards...to be seen...!

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  92. There are few transactions in progress which there are investment even in a steel company where it's only for round tripping for cash. This are instances of cash being removed form the company for personal gains.

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  93. An excellent disection of the company's performance. Super article. If it is true, it should reach the management and proper correction should be made to save the interest of the investors.

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  94. In the words of Peter Lynch, A perfect example of diworsification.

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  95. Had been part of ITC Infotech quite recently and had to leave due to multiple circumstances. Idiocy at its pinnacle I have seen there. They are just surviving using the ITC brand name as otherwise would have been faded in oblivion long back. Every word of ITC Infotech is true.

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  96. Advertisements featuring Ranvir Singh is money in drain , bingo etc

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  97. Outstanding Article. I am a Chartered Accountant and been a banker for over 3 decades. The crowning glory of this article being, when good is not good enough and one ought to be great. Indeed there is a possibility to see this company into the Had Beens category unless immediate course correction measures are undertaken.

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  98. Itc six months view hold or sale

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  99. Really Astonished after reading.. Very worth ful analysis... Hard earned money of small shareholders must be protected very very wisely... Every penny counts to us... Really serious investigation must be ordered in respect to SUNRISE buy out... Rest the management must be utmost careful for spending... Please follow INFOSYS NARAYANA MURTHY.

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    Replies
    1. Correct when small employees thrown out say lack of performance in the same way people who planned things in a wrong way better to resign and pave the way for new people

      Delete
  100. Really Astonished after reading.. Very worth ful analysis... Hard earned money of small shareholders must be protected very very wisely... Every penny counts to us... Really serious investigation must be ordered in respect to SUNRISE buy out... Rest the management must be utmost careful for spending... Please follow INFOSYS NARAYANA MURTHY.

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  101. What to comment, blunders and blunders again and again.

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  102. Nice article , but I have some observations :
    1) ITC hotels are loss making , they never hidden it , also more over their hotels are located in prime real estates , it is not easy / necessary to dispose them unless there is desperate need of money.

    2) ITC. infotech is not an commercial IT company but an in-house it service provider , not easy to get the technology right unless you cater to multiple clients , but in this case handles mostly CRM, own product portfolio wrt to FMCG. Intact ITC infotech helps ITC in avoiding leakages. Outsourcing so much of customer N dealer information and product related analytics to third party IT provider will cost them bomb. Wrong choice to delist itc infotech.

    3) FMCG requires tonnes years of experience if not few decades , HUL , nestle have more then 100 years and Britannia has 90 years of exp . Only exception to less years of experience reqd is Marico even it is nearly 50 in existence . What ITC doing is capturing 25000 cr revenue form all these monarks. Long way to go .
    Had ITC been been selling only cigarettes for last 20 years and generating profits by now it wld have been acquired by govt . It’s important to diversify for a profitable company.

    4) Compared to Nokia and other tech companies they got disintegrated in very quick span of time. Nokia had 70% market share in 2010 and by 2012 they were gone . And Enron had promoter too. So feel comparing ITC to them is apples to orange comparisons .

    5) ITC will face pressures from shareholders for more years For sure but it is not possible to abandon the ship when other giants are feeling pressure from it. It’s matter of few years until other competitors starts unbuckling. So, feel ITC will follow its own path until it reaches its objective with the cushion of cigarettes n cash .

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    Replies
    1. Thank you Suman Bingi for that sane perspective !
      If ESG investing had not become fashionable, the ITC stock would be trading at 350 today !!
      The irony is that ITC's balance sheet and free cash flows are stronger today than when the stock was priced at double of today's level !

      Delete
  103. Great analysis. Kudos.

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  104. Truly eye opener But anyone at the top listening?

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  105. Can anyone send this to NSE and ask immediate intervention. Or at least to news papers. These shits will eat my company. Lets start compain to educate share holder's

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  106. ITC has grown its FMCG Margin to 7.5% in just 4 years ; ITC is gaining Market Share in Every FMCG segment

    ITC is close to post Double Digit Margin in next two years

    One Has to Show its Patience .

    Don’t Trust Any Blog. They r paid.

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  107. Great sir my self invested in itc and waste shares raising and itc falling never sold profit 4 lakhs gone principle amt 2 lakhs gone no bottom in sight and itc having good cig brands but their distribution is very pathetic not complaint having 20yrs exp in same industry no indepth coverage leaving thousands of villages and thousands thousands of ol and no controls seen in marketing heavy salaries every one in marketing feels great i have written regarding this to itc ho no reply whether they have read that or thrown away no idea problem is ego great old company still feel like british kings and nizam kings but no internal planning to grow just launching so many lacking indepth distribution they will not listen to any one not looking at ground what is happening but as yku said small investors lost all and the funny thing is some brkkarage given target of 353 hope they might requested them to give false story so that small investors will be shaved 100lercent

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  108. What will do for itc hold or exist

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  109. Totally agree with author...most inefficient use of cash. RoE, RoC both absymally low. Hiving off FMCG and hotels into separate companies is vital to stem the rot of shareholder wealth destruction.
    Buybacks are the need of the hour.
    Hope the Board sits up from their slumber...!

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  110. Well said the board should at least rise from their deep slumber and act immediately before it is to late this article needs to be given wide publicity in the print media so to gather a big storm against the board all small shareholders please support this move strongly

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  111. Very nice article, I hope the chairman presentation in AGM is more like a sales man selling tea kind of a note. I don’t think so he knows anything that is happening in the ground level, their own employees are eating money, by creating artificial demand in the market. Likewise what happened during CORONA, they black marketed the products, every year this happens I don’t understand why this happens, I saw a many their company executives are millionaires, how they become so wealthy, in short span, I heard they even throw un socialised parties promoting drugs, women, and else more, proper proofs are available with a leading news channel.
    They are making use of share holders hard earned money for their enjoyment and earning.
    Each and every employee of ITC is corrupt from top to bottom. I challenge, if not so why there’s no enquiry for the expenditure they show in product development activities , that is all a scam it is being distributed from top to bottom among bosses.
    Cigarette business is not dead, their own crookedness killed the cigarette business, leading Marlboro to grow in length and breath of the country.
    This has more or less became like a monestary.
    Women are treated to the ugliest status in this company , there is no room for women safety here, being a women, my cry would be values, and it is the last spoken words in this world. But they advertise values, india, traditions ( nothing is true)
    Finally I would conclude by saying this is a mentally ill, unstable personnel run company.

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    Replies
    1. Yes, New young Talent should be brought on the Board.
      Beyond a limit compensation should be only by way of stock options.
      Unrelated business should be sold off

      Delete
  112. I am afraid , I may not agree with the findings . But I respect his views .
    ITC s share price was 245+ in Jan 2020. Then it faced two big problems. First Heavy tax by Govt and then Covid and lockdown. It has 100+ factories / establishments and so the lockdown impact is high .
    However Q1 results are either met or better as compared to analysts expectations.
    Company s performance is good .
    ITC entered in to FMCG 10 yrs back . It captured 15000+ cr market and their brands are at either No 1 or at No 2 positionsin market which is a great achievement, and it is all entirely internal , indigenous / Indian with no external support / involvement. Considering Competition from HUL , an international company and Britannia , with long years of presence , may be 60 + or even more , it is a great achievement.

    Once FMCG starts giving full returns , ITC s share price also will go up .
    What , Savlon is a bad acquisition? . It is the best acquisition. It is performing exceedingly well .
    It just acquired Sunrise , I saw good comments from Analysts . So we should give some time before commenting.

    I understand his concern above it share price .
    We saw one Company s share price moving from 850 to 2200 in just 4 / 5 months . That is because, their Investments started paying back .
    Many companies share prices did not move for many years and they are at their highs today .

    Once ITCs FMCG starts paying , it will also move up . Also ITC has given Bonus shares almost once in every 5 years . Dividend, I need not talk as it gave good dividends.
    In my view this is a temporary phase .
    I am also a minority share holder for 15 years and my investment has grown considerably.



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  113. Superbly articulated...what a depth of 368 pages study it would've been, I'm quite sure the Chairman himself wouldn't have read 10% of his annual report!

    It's high time, SEBI or Company Board or MCA is earnestly requested before Lakshmi Vilas Bank or an Enron, both so similar to Red Tapeism so prevelantly inherited in this company called ITC!

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  114. Great article- now I understand why all.the money I put into this great name company is going down the drain every day. Time to book losses and leave it....

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  115. Good analysis! Same was the case with M&M till recently. Only after the management announced its intention to take measures to improve capital efficiency, stock has performed in last few months. Before that, M&M was also a laggard for more than 5 years.

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  116. This is a wake up call to the management team. Some of the truths have come out. Its better to early rectify than never.

    Your meetings and eating the company shareholders are not accounted.

    Some external audit is need of hour. Also to check the political donations/concessions which are not accounted till.

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  117. Each and every sentence i read written by you just gave me goosebumps and now i am actually clueless about how the top officials at itc are going to manage the money and should i considere withdrawing my hard earned money that i have put into it. Ypu should seriously mail it to management

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  118. It must be a eye-opener for the board and they have to reply each and every concerns raised..,

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  119. Well drafted article. Should be shared on all platforms for a nationwide reach.
    The board should answer for these blunders.

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  120. When dealers are blocking cig before budget seeing since 20 years no controls this happening from salesmen no contros no checking all officers in marketing will not visit market in full and enjoy by sitting infront of dealers with laptops enjoying tea how can you expect big people really work for company this happening since 20years when i entered the same industry

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  121. Very nicely articulated blog highlighting the cancer spreading in the Company. Hope there is an awakening and a change of course.

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  122. Hope it reaches to Bhasin jee and media anchors aand the head staff of the ITC.

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  123. can we as a shareholder can send these questions to the board or Company secretary over email any email reference

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  124. Great insights. Being minority share holder, I would urge ITC mgt to take serious note of these insights n work hard on turnaround plan. Show some strength in QoQ profits. Act now or be ready to become another Nokia. Cut unwanted expenses , award shares than cash salary, focus on revenue generation n gaining more market share in profitable businesses only.

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  125. Great analysis oc blunders by management. Yes this stock is behaving like a dead body on bourses

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  126. Seems there is corruption in acquiring sun rise at higher valuations....

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  127. The only question is why cant BAT being largest shareholder ask ITC all this questions, so management gets answerable?
    All govt institutional shareholders will never ask till they are getting good dividend. As minority shareholder we should take questions to BAT and BAT in turn should ask management.

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  128. The management does not know what customers want. The sales persons on the field have lot To Offer the management on customer needs and feed back. But management never want To listen. Sales guys are not allowed To talk in sales meetings. Bosses talk and sales rep listens. Any sales guy dar es To talk is finished. Management knows only what their agencies tell. Our system is fuedal as we See in Up & Bihar

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  129. Why don't you send this to SEBI? Because we have tried asking these questions a countless times in ITC earnings call. And all they want to do is to paint a rosy picture and talk about some ESG bullshit. Its a red flag when a cigarette company itself starts talking about ESG bullshit and the manager Mr. Puri bats for ESOPs even when they are not performing. It is a good business, but doesn't mean management cannot kill it with scandals. Sir, it would be great if you could send this to SEBI or BAT for further resolution.

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  130. On top of everything else pensions have been frozen. I retired as Vice-President after working for 21 years and my pension (after commutation) has been Rs. 10553 per month from the beginning. The post retirement medical benefits do not even cover pensioners’ medical insurance premium.

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  131. Great insight and internal audit. I sold all my ITC holdings today, because when mngmnt is least bothered why should I burn my money.Thanks buddy.
    CA R.C.Shah

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  132. very good article this is perfect answer to all those who are asking why is itc not rising

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  133. Very good post Sir. I am curious to know the Return on the massive hotel they have built in Chennai "ITC Grand Chola" with highly priced rooms and less than one mile away from Park Hyatt and Lemon Tree(less than 3 miles from Radisson and Trident).Do they really get that many visitors paying so much? The thing is huge.The chocolate brand Fabelle they have started is truly good in taste(tasted before they started mass selling), hope that at least win there.

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  134. A great article and insight Manu sir.. I think you should send a letter to the board, with a copy to SEBI. I hope other minority shareholders too join you in turning down board recommendations during the AGM, if it doesn't satisfy or bring confidence to the minority shareholder.

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  135. This report is a well studied one. However this will only help to further drag the share value and will effect small investors.

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  136. I was blindly investing in it seeing all economic news inside story is scary I think time to sell and run from the company thanks a lot for this we minority share holders can not even ask questions

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  137. I wish all these queries were raised and emailed in the last ITC Board Meeting, if not already done. Very relevant questions which needs answers. Like the LVB and Dhanalaxmi bank shareholders, we should find ways to kick out poor Board.

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  138. Great Insights, appreciated but could have used simply words

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  139. Nicely done. ITC Board should answer why the shareholders' wealth is declining while other companies are progressing during a couple of years.

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  140. Thanks for this. You have really articulated the frustration of every ITC shareholder.

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  141. All top management busy in investing in the startup, which are started by ex employee's of ITC, and also nurturing them by investing there contacts and time. High time they are investigated for there corrupt adventures. I heard some big projects have been handed over to these startups by ITC, instead of reputed company, every thing has changed after YCD.....

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  142. Few inteligent group is after certain well established companies providing jobs to thousands.
    They themselves have not provided a single job to our youths,but they do hunting on well established companies oneof thatis ITC sad.

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  143. To protect the interest of the minority share holders interest these should be investigated by the appropriate authority. If any malafide intention is found on the part of the management they should be brought into book. Prima faci sheer callousness is seen.Board is taking advantage of virtual AGM to avoid the wrath of the cheated retail investors. Like LV Bank , corrupt, callous and inefficient management should be kicked out.

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  144. have you thought on HUL and Hero Motor corp. These companies came out of deep slumber of more than 15 years and took a giant step and now are being revered by the investors. i hope people are aware about the life span of cigarette market because of health awareness. we must also not forget the uncertain policies of govt on the sin tax imposed on cigarette. why as a govt we have not been able to check the illegal import of cheap cigarette eating market share of itc. we should also keep in mind the cheapest valuation of this stock ( P/E and P/B) which should be comforting for investor with added advantage of dividend yield of approx 5-6%. Therefore if some is not happy with the stock please move out and buy any other stock. Personally I feel This is a great stock and need patience as the FMCG push will take little more time ( 2 years or so ) to set. I am crazy about the stock. thanks

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  145. The Problems of ITC stem from the Exit of A.N. Haksar as Chairman on retirement.

    His successor J.N. Sapru, though his Brother in Law was not his choice but that of the PMO exercising their 37% shareholding.

    All Businesses started then Financial Services, International Businesses, Edible Oils, Real Estate were wound up as unviable. ITC never had the talent in house and it's a mystery why they ventured into it.

    His successor K.L.Chugh again a Government Nominee was an unmitigated disaster and with him the Core Strength of ITC - Its Marketeers left. The GOI had to ensure Chugh left.

    Y.C. Deveshwar was also a pedestrian choice. He ran a printing shop in Madras and was picked up for the Hotels Business. His only claim of success was providing some scale to the Hotels Business. It after all gives ITC a Cash Pile from Depreceation and constant renovations.

    The successors to Deveshwar are two Production Engineers, one Accountant and one Hotels Front Office Expert.

    No Visionary, No Marketing Champion - It doesn't add up to revive the Haksar days.

    BAT its parent is a pale shadow of its past and cannot contribute much to its future.

    With its entrenched management supported by the GOI for reasons best known to them, the future will get bleaker and will go the way a lot of Big Names of the past like Andrew Yule, James Finlay, Balmer Lawrie, et al have gone.

    Till then its downhill unless tectonic changes happen. Maybe a takeover by Kraft Heinz or Mondelez like the entire food business in Europe happened may offer some hope.

    Managers need Dignity. Sans that there will only be also rans at the helm

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  146. Views expressed are the pain of all the stock holders, who have lost their hard earned savings to almost 40 to 50 % during last couple of years. Seems Company Board has become paralysed and is inept to act.

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  147. From the value invester point, these questions to the board are useless. A value investor should seek for the alternative rather than fighting with non performing asset. If the investor don't see any future based on the board decisions its wise to move out.

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  148. I would compare ITC with IIFL. Same callous attitude towards the company.and it's shareholders.

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  149. Pls give me ur mail id and once I leave the company I will tell a lot more than you have written about.

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  150. Can you please buy shares of other elephants who cannot dance and write upon them?

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  151. Have you noticed that in the FMCG business, for any brand to get launched, you have to have a brand name that is easy to pronounce for semi-urban or rural households. (old brands are an exception as they have been around for 4-5 decades). They've been fine with Aashirwad and Bingo - but what about Fiama Di Wills, Essenza Di Wills, Vivel, Fabelle, Sunfeast ?? Did someone not give them a feedback? Forget potential customers, even the shopkeepers don't order some of these as they can't get hold of the brand names..

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  152. Well written Manu! Am hopeful CEO change will happen sooner than expected. ESG will wear off. Hotels cash burn. Will take 3 years for stock prices to change course.

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  153. Very good analasys but there is no worry why because they are giving good dividend and equity 1200cr but reserves 64000 cr so bonus possible iam holding ten thousand shares

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  154. Superb article, LIC should withdraw it’s share from this fraudulent conglomerate.
    Dear chairman please read all this, may not everything is true or time bound, there’s a good suggestion from the above about your employees, if you correct that, your company would see next glorious 100 years.

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  155. What a wonderful article . Jack and itc went up the hill along with its directors...... and then you know what is happening. This poetry was made for them.

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  156. Fitting! Somebody needs to write such an article about L&T also.
    Whats common between the two? No promoter!

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  157. Very nice and eye opener article and management should take this seriously and must take some bold steps to reward shareholders who are showing great confidence in the company even after dismal performance by its share price

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  158. This is a great insight and I think even if ITC management act on 50% of these suggestions thought, they will be 1L crore company in 1-2 years. How can we small share holders remove these stupid management?

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  159. Eye opener, also concerned about slow growth.

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  160. Well said , everybody was waiting to convey this to board. Most lost their capital,better SEBI to interfere.

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Your comment is immensely appreciated and will be published for a discussion - soonest. Thanks. manu