ITC Shares Complete Fundamental Analysis and Future Outlook
ITC was incorporated in 1910 as the Imperial Tobacco Company and was later renamed as ITC Limited in 2001 where it no longer stands as an acronym. ITC is one of the largest private sector companies in India and also a diversified conglomerate with businesses ranging from Fast Moving Consumer Goods, Hotels, Paperboards and Packaging, Agri-Business and Information Technology.
- The Company is acknowledged as one of India’s most valuable business corporations with a gross sales value of approximately $ 11+ billion last year.
- It operates across many industries, but all of them requires scale and branding for achieving market dominance. ITC strives towards diversified portfolio offerings away from its traditional cigarette business.
- The company has more than a century of presence in the Indian market and is now a dominant player in Paper and Paperboards, Agri-Business, FMCG and Hotels. Some of the largest non-tobacco brands include Ashirvad with revenue of INR 4500+ Crores, Sunfeast with a revenue of INR 3800+ Crore, Bingo with a revenue of INR 2500+ crore and Classmate with a revenue of INR 1400+ crore.
- Each set of business has its competitors and different market conditions, but overall ITC has been successful in establishing its dominance in the Indian market because of its scale, brands and distribution network.
I have evaluated the company on 10 fundamental categories and each has been given a rating out of 5 stars. From this, I have arrived at a combined stock rating for the company.
This is the summary of the analysis. You can read the detailed analysis with the excel models on my blog (Check the source link)
Source: ITC Shares Fundamental Analysis and Future Outlook
Some insights for the coming years from the analysis, management discussions and con calls are as follows.
- The effect of COVID-19 outbreak and the lockdown can be in double digits on revenue and profits for the company due to the ban on selling cigarettes during the period. There is also a behavioural repercussion to this. A ban on tobacco products for more than a month has the potential to prompt fringe or non-serious smokers to give up the habit due to its harmful effects. This may shrink the market further.
- The prices of cigarettes will also increase by 10–20% as the company passes on the new tax burden to the consumers. The price increase is likely to have an impact on the volumes sold and the profitability of the company.
- One major issue concerning the valuations are the ESG factors. The FII holdings in ITC has declined to 15% in 2019 from 20% in 2017. Its sustainable business practices (being carbon positive, water positive and solid waste recycling) have failed to win over its ESG-conscious investors.
- The company has a presence in non-tobacco business for over 20 years but none of the businesses has achieved the scale matching the tobacco business. The company still is heavily dependent on one business which drives its profitability.
Overall ITC shows many indicators of declining valuation in the future. Fundamentally the company still remains strong and can see good growth in the coming years after the COVID-19 situation clears. However, for shareholders, their returns might not be in proportion to the increased earnings due to declining valuation and price multiples.
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