This article provides an in-depth fundamental analysis of ITC, which is one of the biggest FMCG companies in India. In this article, we have Analyzed the business, financials, fundamentals, and stock performance of ITC.
This will help you evaluate is ITC better for investment. But before I proceed, please note that our analysis is only for educational purposes and not to provide stock tips. This article is to empower you with the right knowledge so that you can make an informed investment decision.
ITC Fundamental Analysis
Initially known as the Imperial tobacco company. ITC was incorporated in 1910, with its first office in Kolkata. Later in 1913, the company launched its state-of-the-art tobacco factory in Banglore. On its 16th birthday, ITC bought land in Kolkata for a new office to mark the beginning of an eventful journey into India’s future. Today, the office is known as Virginia house, one of Kolkata’s most important landmarks. As of mid-2020, ITC’s tobacco business contributed around 74% to its profit.
In 1925, they entered into packaging and printing business. In 1953, ITC acquired the Lithographic printing business of Printers limited.
In 1975, they entered into the hospitality sector. In 1994, hotels under the company were transferred into the listed subsidiary company ITC hotels limited and In 2000, they stepped into the clothing, stationery products & gifting business.
ITC’s FMCG business is one of the fastest-growing in the country, with a portfolio of 25 mother brands in foods, personal care & hygiene products, education & stationery products, agarbattis & matches.
Also read: Basic stock valuation methods.
ITC Fundamental Analysis: Business
ITC has 13 businesses in 5 segments, launched over 120 new products in the financial year 2020-21, ITC has a presence in more than 100 countries and the FMCG products of ITC are available in 6 million retail outlets, ITC’s products reach over 150 million Indian households.
Most of the revenue and profits of ITC are from the tobacco segment. In India 10% of the tobacco is only legal consumption, which makes India the fourth largest market for illegal tobacco consumption, it leads to a loss of revenue of 13,000 crores to the Indian government.
Illegal Cigarettes are the biggest competitors for ITC. Because they don’t pay any taxes, which results in low cost. Every year the consumption of illegal cigarettes is increasing, whereas legal cigarettes consumption is falling.
The reason for this is, the government of India is continuously increasing the taxes on cigarettes, which leads to an increase in the price of cigarettes so that smokers will stop smoking. But what happening is smokers are moving towards illegal cigarettes.
In the stationery market, ITC has a 25% market share under the brand name Classmate.
ITC has its presence in businesses like Cigarette, FMCG, Agri, Paperboards and packaging, Hotels, and Infotech.
ITC has filed over 900 patents.
ITC Fundamental Analysis: Agri Business
ITC’s Agri-business division is one of India’s largest exporters of agricultural commodities. Helping over 4 million farmers with E-CHOUPAL, by providing them with internet access. This initiative helps in informing and empowering the farmers to improve the quality of agricultural goods. There are 6,100 E-CHOUPALS in operation in 35,000 villages in 10 states. Each installation serves an average of 600 farmers in the surrounding 10 villages, within about a five-kilometer radius.
ITC Fundamental Analysis: Hotel Business
There are four segments of ITC hotels.
The four major brands are ITC hotels, which work in the luxury segment. Welcomhotels, which works in the upper scale segment, to upscale segment. Fortune, which works in mid-market to upscale segment. The last one is Welcomeheritage, which works in the leisure and heritage segment.
The overall hotel industry gets a boost if more and more people start staying in hotels whenever they are traveling. So basically more and more travel and vacation will benefit the hotel industry. If more foreign travelers also arrive and stay in hotels then that is where the overall revenue and profitability increases for hotels.
Our tourism Ministry also promoted ‘Atithi Devo Bhava’, whereby they are encouraging people to attract more and more tourists into India. Currently, there are 10.5 million foreign tourists arrive every year in India, but that’s far behind China, Which is 60 million travelers traveling to China every year.
Brands of ITC
ITC has a lot of other brands too, some of them are:
- Sunfeast (biscuits, cookies & cakes).
- Kitchens of India ( ready to eat gourmet cuisine, masala mixes, chutneys & conserves ).
- B Natural ( juices & beverages ).
- Gumon ( gums ).
- Fabelle ( luxury chocolate ).
- Sunbean ( gourmet coffee & beaten coffee ).
- sunfeast wonderz milk ( daily beverages ).
- ITC master chef ( blended spices, frozen prawns, snacks & kebabs ).
- Farm land ( fresh potatos, frozen vegetables and tomato puree ).
- Sunrise.
- Dermafique ( premium skin care ).
- Enagae ( colognes, deodorants & perfume sprays ).
- Nimly ( dishwash gel ).
- Nim wash ( vegetable & fruit wash ).
Brand Leadership of ITC
- Aashirvaad is no.1 brand in aata.
- Yippee is no.2 in noodles.
- Bingo is no.1 in the bridges segments of snack foods and no.2 overall in snacks & potato chips.
- Sunfeast is no.1 in the cream biscuit segment.
- Savlon is no.1 in surface sidinfectant spary.
- Classmate is no.1 in notebooks.
- Fiama is no.2 in liquid bodaywash category.
- Mangaldeep is no.2 in Aggarbattis.
- Engage is no.2 in deodorants
Over 41% of the energy consumed at ITC is from renewable sources.
Annual Consumer Spends
Consumers spend more than 4500 crore rupees on Aashirvaad aata, more than 3800 crore rupees on Sunfeast, more than 2500 crore rupees on Bingo, more than 1500 crore rupees on Classmate, and more than 1100 crore rupees on Yippee.
ITC Fundamental Analysis Of business: Key points
The branded packages foods business remain focused on addressing emerging, consumer needs with innovations anchored on the vectors of health, wellness, immunity, and naturals.
ITC’s brand Sunrise is the clear market leader in eastern India, in the fast-growing spices category with a rich heritage and brand legacy of over 70 years.
In the frozen snacks category, ITC Master Chef products comprising 30 differentiated variants continuos to garner increasing consumer franchise. During the financial year 2020-21, availability was extended to 100 new markets in a short period taking the aggregate to 135 towns.
Exports by the branded packages foods businesses recorded robust growth led by atta and biscuits. The businesses currently export to over 50 countries.
Demonstrating a high degree of agility and responsiveness, the personal care products Business rapidly expanded manufacturing capacity manifold across categories – Handwash 4.5x, Sanitizers 100x, Floor cleaner 2.3x, Soaps & Antiseptic Liquids 6x.
Savlon witnessed significant revenue growth and reached nearly Rs 1200 crores in terms of consumer spends during the year.
The educational and Stationery products industry was severely impacted during the year due to COVID-19 induced lockdowns and closure of educational institutions for the major part of the year.
Also read: Top 10 monopoly stocks in India.
ITC Fundamental Analysis: Financials
| ITC | |
|---|---|
| Market Cap | 2,91,489 Cr |
| Price To Earnings ( P / E ) | 21.34 |
| Price To Book Value ( P/B ) | 4.26 |
| Price To Sales Value ( P/S ) | 6.28 |
| Price To Cash Flow ( P/CF ) | 24.84 |
| Sales Growth ( 5 Years ) | 4.45% |
| Profit Growth ( 5 Years ) | 6.94% |
| ROE ( 5 Years ) | 23.89% |
| ROCE ( 5 Years ) | 32.83% |
| Debt To Equity | 0 |
The financials are not so great, at the same time not so bad. Financials are average. but the PE multiple of ITC is just 21, which means ITC is undervalued. The average PE of FMCG stocks is more than 60, whereas ITC is trading at just 21 PE multiple.
The numbers of sales growth and profit growth are also not so good. Because other FMCG stocks are generating good profits and sales growth when compared to ITC.
Overall financially ITC is a very strong company, the financials are still not as good as other FMCG stocks, But ITC has strong fundamentals and management.
Also read: Best stocks below rs 500 in India.
ITC profit & Loss
| ITC | |
|---|---|
| Net Sales | 45,485 Cr |
| Profit Before Tax | 17,164 Cr |
| Net Profit | 13,031 Cr |
| EPS | 10.59 |
Most of the ITC’s revenue and profits are from the cigarettes segment.
ITC Balance Sheet
| ITC | |
|---|---|
| Equity and Liabilities | |
| Share Capital | 1,230.88 |
| Total Reserves | 57,773.70 |
| Borrowings | 5.28 |
| Other N/C liabilities | 2,396.51 |
| Current Liabilities | 10,174.17 |
| Total Liabilities | 71,580.54 |
| Assets | |
| Net Block | 21,798.27 |
| Capital WIP | 3,329.97 |
| Intangible WIP | 3.50 |
| Investments | 13,326.94 |
| Loans & Advances | 1,306.44 |
| Other N/C assets | 0 |
| Current Assets | 31,815.42 |
| Total Assets | 71,580.54 |
How to read, analyze or understand a balance sheet.
ITC Shareholding Pattern
| ITC | |
|---|---|
| Promoters | 0% |
| Public | 45.86% |
| DII | 42.4% |
| FII | 11.74% |
| Others | 0% |
When you think of reliance, you get a picture of Ambani. If you think of Apple, you get a picture of Steve Jobs. If you think of tata motors, you get a picture of Ratan Tata. But what about ITC?. Well, it’s a professionally managed company with 0% promoter holding.
ITC ratings
| Ratings | ITC |
|---|---|
| Crisil | |
| Long Term Rating | AAA |
| Short Term Rating | A1+ |
| ICRA | A1+ |
ITC cash flow statement
| MAR 2021 | |
|---|---|
| Profit from operations | 17,164.15 |
| Adjustment | -1,318.74 |
| Changes in assets & liabilities | -394.84 |
| Tax paid | -3,956.62 |
| Operating cash flow | 11,493.95 |
| Investing cash flow | 6,554.84 |
| Financing cash flow | -18,376.89 |
| Net cash flow | -330.10 |
ITC Stock Performance
For the past 5 years, ITC has stock has fallen at a CAGR of -0.4%, fallen at a CAGR of -5.2% over the last three years, and in the last year, the stock was up more than 39%. ITC is in consolidation mode for the past 5 years. But ITC has given 20 times returns from its IPO.
Frequently Asked Questions
Is ITC Fundamentally Strong?
Yes, ITC is fundamentally very very strong. Management of ITC is experienced and very strong, ITC financials are also strong. ITC cigarettes business is a good cash generating segment. If ITC is not strong, how will they give dividends every year? ITC is giving dividends every year because they are generating a good amount of cash.
Is ITC a Good Buy in 2021?
Yes, this is the best time to buy ITC, if you are looking to hold for the long term. The reason for this is, from the crash of markets due to Covid, almost all FMCG stocks and all fundamentally strong stocks have rallied a lot. ITC is in consolidation mode. Recently FMCG stocks have rallied a lot, but ITC has not participated in that rally.
The PE multiple of ITC is very low when compared to other FMCG companies, which signifies that ITC is undervalued.
Is ITC Overvalued or Undervalued?
ITC is undervalued. The PE of multiple of ITC is just 21, whereas the PE multiple of other FMCG stocks is more than 70, 80, and even 100 for some companies. The average PE of FMCG companies is more than 60, which is three times more than that of ITC.
Can ITC Become a Multibagger?
Yes for sure, because as of now, most of the ITC revenues and profits are from the cigarettes segment. But ITC is strongly moving in the FMCG segment, ITC has very good branded products in the FMCG segment. In the future, ITC may become even stronger in the FMCG segment. Which diversifies their revenues and profits and will unlock the value of ITC. If ITC uses the cash generated from cigarettes to diversify or to increase its product portfolio in the FMCG segment, this will help ITC to gain a stronger market share in FMCG.
What are ITC Products?
ITC Products are:
- Aashirvaad aata
- Classmate
- Fiama
- Bingo
- Candyman
- Mangaldeep
- Vivel
- Mint-O
- Sunfeast (biscuits, cookies & cakes).
- Kitchens of India ( ready to eat gourmet cuisine, masala mixes, chutneys & conserves ).
- B Natural ( juices & beverages ).
- Gumon ( gums ).
- Fabelle ( luxury chocolate ).
- Sunbean ( gourmet coffee & beaten coffee ).
- sunfeast wonderz milk ( daily beverages ).
- ITC master chef ( blended spices, frozen prawns, snacks & kebabs ).
- Farm land ( fresh potatos, frozen vegetables and tomato puree ).
- Sunrise.
- Dermafique ( premium skin care ).
- Enagae ( colognes, deodorants & perfume sprays ).
- Nimly ( dishwash gel ).
- Nim wash ( vegetable & fruit wash ).
Related Articles
Trident share price target 2022, 2023, 2024, 2024, 2025, and 2030
TATA MOTORS FUNDAMENTAL ANALYSIS
