Fundamental Analysis: ITC Limited

ITC LIMITED

 

ITC Limited is an Indian multinational conglomerate company headquartered in Kolkata, west Bengal. The Company is acknowledged as one of India's foremost private sector companies with a Gross Sales Value of ₹ 76,097.31 crores and Net Profit of ₹ 15,136.05 crores (as on 31.03.2020).

        Their key businesses are

1.  Cigarettes

2.  FMCG – others

3.  Hotels

4.  Agri business

5.  Paperboards and Packaging.

6.  Information technology.

 

Cigarette business

        This is major contributor in the business of ITC limited. As of now ITC is majorly dependent on cigarette business. ITC's wide range of brands, includes Insignia, India Kings, Classic, Gold Flake, American Club, Navy Cut, Players, Scissors, Capstan, Berkeley, Bristol, Flake, Silk Cut, Duke & Royal.

Majority of their revenue comes from cigarette business. It has been consistent revenue generator for ITC and it will remain same in future as well.

FMCG – Others

        Cigarettes also the part of FMGG but to get clear understanding of their business we are discussing separately.

        Their packaged food business is one of the fast growing Business in India. In short span of time ITC introduced over 30 brands in which many brands are market leaders in their segment. Some of their popular FMCG brands are Aashirvaad, Bingo, Sunfeast, Fabelle, Sunbean, Yippee! , Kitchens of India, B Natural, ITC Master Chef, Farmland, mint-o, Candyman  and GumOn.

       They have efficient supply chain and distribution network all over the world. Now the company is focusing more on this segment to diversify the business.

Hotels

        ITC Hotels, India's premier chain of luxury hotels, has become synonymous with Indian hospitality. They have 110 propeties across 74 locations in the world.

Other brands in ITC's hotel group repertoire are: 'Welcomhotel' in the 5 star segment, Fortune in the mid-market to upscale segment and 'WelcomHeritage in the heritage leisure segment.

 

Agri business

 

        ITC is one of India’s largest integrated agri business enterprises with significance presence across every node of agriculture value chain.

ITC's Agri Business is the country's second largest exporter of agri-products. It currently focuses on exports and domestic trading of:

·        Feed Ingredients – Soyameal

·        Food grain - Wheat & Wheat Flour, Rice, Pulses, Barley & Maize

·        Marine Products - Shrimps and Prawns

·        Processed Fruits - Fruit Purees/Concentrates, IQF/Frozen Fruits, Organic Fruit Products

·        Coffee

 

e- Choupal Intiative :

 

ITC's unique strength in this business is the extensive backward linkages it has established with the farmers.

 

The unique e-Choupal model creates a significant two-way multi-dimensional channel which can efficiently carry products and services into and out of rural India, while recovering the associated costs through agri-sourcing led efficiencies. This initiative now comprises about 6100 installations covering over 35000 villages and serving over 4 million farmers.

 

Paperboards and Packaging

 

        ITC’s paperboards and specialty paper division is India’s largest technologically advanced and most eco-friendly paper and paperboard business.

        ITC's Packaging & Printing Business is the largest value added converter of paperboard packaging in South Asia. It converts over 70,000 tonnes of paper, paperboard and laminates per annum into a variety of value-added packaging solutions for the food & beverage, personal products, cigarette, liquor and consumer goods industries.

 

 

Quantitative analysis

 

 

 

1.  Return on capital employed (ROCE) = 32.6%

·         Strong ROCE number gives an idea about how efficiently ITC is generating profits from its capital employed across its diversified business segments.

2.  Return on Equity (ROE) = 25.3%

3.  Debt to Equity Ratio (D/E) = 0.00

·         The Company is virtually debt free.

4.  Dividend Yield = 6.07%.

·         Stock is providing a good dividend yield of 6.07%. The company has declared dividend of Rs.10.15 per ordinary share for FY20.

 

 

 

Balance sheet

 

 

 

Reserves:  Reserves increased from Rs.11,911 crores to RS.64,044 crores is a good sign.

Investment: Investment activities are increased. They are expanding their business.

Assets are also gradually increasing which shows ITC is financially healthy company.

 

Share holding pattern

 

 

 

Foreign Institutional Investor (FII) holdings are reduced shows slightly negative outlook.

Domestic Institutional Investor (DII) holdings remains constant.

ESG Parameters

ESG stands for Environment, Social and Governance. Nowadays, the institutional investors give a lot of importance to ESG parameters. Cigarette segment is the reason for negative impact on environment and social parameters. From governance side there is no problem. ITC is well managed company.

The company has made an effort to reduce its dependence on cigarettes. It has been effectively able to channelize all its funds generated from the business of cigarettes. Thus, it is employing a decent capital into its FMCG (Non-Cigarettes business), Paperboard & Packaging business and Hotels chains.

 

 

Bottom line

 

      Only companies that have strong corporate governance policies, consistent financial performance, good upper management can able to give healthy returns to their investors over the long-term. ITC Ltd which has come a long way in this regards, is one of India’s pioneers in the private sector.

 ITC stock in future is sure to rise high, as the company continue diversifying its products.