ITC – Potential for Value Unlocking Oct-20

ITC – Deep Value; Significant opportunities to unlock value for Shareholders

CMP: Rs. 171; Market Cap: 210,047; Cash & Equivalents: 37,859 Cr (Mar-20)

Key Thesis
• ITC has seen significant underperformance to Nifty Index and Nifty FMCG Index led by P/E De-
rating inspite of sustained profit growth in last 3-4 years
o ITC’s Market cap has fallen from ~Rs. 3.93 Lac Cr in 2017 to ~Rs. 2.1 Lac Cr currently
o During same period, Hindustan Unilever’s Market cap has grown 3x from ~Rs. 1.5 Lac Cr to
~5 Lac Cr currently
• Some of the key concern which have resulted in P/E de-rating are:
o Persistent selling by few of the large global funds who follow the ESG principles of Investing
has resulted in P/E de-rating of all Global Tobacco Companies
o FII shareholding in ITC has come down from 20.5% as on Mar-16 to 12.96% as on Sept-20

P/E Last 10 Yr
Market Net Debt/ Cy20/ Cy21/
All Figures (US$ Mn) CMP Avg P/E High P/E Low P/E
Cap (Net Cash) Fy21 Fy20
British American Tobacco
2,572 72,580 5,254 7.8 7.4 14.6 20.6 7.6
Philip Morris 74 1,15,940 2,495 14.6 13.1 17.3 24.5 13.1
Japan Tobacco 1,994 36,975 573 12.2 11.1 15.0 20.2 10.9
ITC 171 19,485 -37,859 15.2 13.0 26.7 32.7 13.8
Imperial Brands 1,300 15,133 1,396 5.0 4.9 11.4 16.9 4.9

o Increased Capital Allocation to Capex intensive sectors like Hotels (~Rs. 6,800 Cr in Last 10 Yr)
has diluted the ROCE profile of ITC from 32% in Fy16 to 25% in Fy20
• Currently, Cigarette segment continues to have a dominant share (~90%) in the EBIT pool of ITC
• FMCG segment has significant growth potential coupled with margin expansion which would
result in FMCG EBITDA improving to ~Rs. 4,000-5,000 Cr by Fy25 (v/s ~Rs. 900 Cr in Fy20)
• We have considered two scenario’s for FMCG Growth
o 12% Revenue CAGR led mainly by Organic route with small acquisitions and 18% Exit EBITDA
o 18% Revenue CAGR led by large FMCG acquisition from its large cash pile and 18% Exit EBITDA

ITC - FMCG - Segment Performance - 12% Revenue CAGR

Fy21-Fy25
Particulars (INR Cr) Fy19 Fy20 Fy21E Fy22E Fy23E Fy24E Fy25E
CAGR
Net Revenue 12,498 12,844 14,386 16,112 18,045 20,211 22,636 12%
EBITDA 688 914 1,295 1,853 2,526 3,234 4,074 33%
EBITDA % 5.5% 7.1% 9.0% 11.5% 14.0% 16.0% 18.0%

ITC - FMCG - Segment Performance - 18% Revenue CAGR

Fy21-Fy25
Particulars (INR Cr) Fy19 Fy20 Fy21E Fy22E Fy23E Fy24E Fy25E
CAGR
Net Revenue 12,498 12,844 14,386 16,975 20,030 23,636 27,890 18%
EBITDA 688 914 1,295 1,952 2,804 3,782 5,020 40%
EBITDA % 5.5% 7.1% 9.0% 11.5% 14.0% 16.0% 18.0%
ITC – Potential for Value Unlocking Oct-20

• Inspite of very High growth in FMCG segment, Cigarette segment will continue to have more
than 75% share in EBIT pool even in Fy25 which may discourage large number of Global Funds
following ESG to Invest in ITC even in the foreseeable future

EBIT Projections - (FMCG - 12% Revenue CAGR)

CAGR % of EBIT
Fy19 Fy20 Fy21E Fy22E Fy23E Fy24E Fy25E
(Fy21-25) Mix (Fy25)
Cigarette EBIT 15,411 15,838 13,938 16,447 17,762 19,183 20,718 10.4% 76.6%
FMCG EBIT 316 425 745 1,228 1,826 2,484 3,274 44.8% 12.1%
Agri Business EBIT 793 830 913 1,004 1,104 1,215 1,336 10.0% 4.9%
Hotels EBIT 186 154 -200 100 200 350 500 1.8%
Paper & Packaging EBIT 1,239 1,305 1,240 1,389 1,556 1,742 1,951 12.0% 7.2%
Others EBIT (Mainly IT) 172 291 320 352 387 426 469 10.0% 1.7%
Unallocated -1,088 -1,135 -1,100 -1,125 -1,150 -1,175 -1,200 2.2% -4.4%
Total EBIT 17,029 17,709 15,855 19,394 21,686 24,225 27,049 14.3% 100.0%

• With ~75% of the Profit being contributed by Cigarette, in the current form ITC may continue to
trade at 14-16x P/E (At a premium to Global Tobacco Cos for the option value towards the
FMCG business)

Val. without Demerger (FMCG - 12% Rev. CAGR) Val. without Demerger (FMCG - 18% Rev. CAGR)
Fy22 Fy23 Fy24 Fy25 Fy22 Fy23 Fy24 Fy25
EPS 13.3 14.7 16.2 18.0 EPS 13.3 14.9 16.6 18.5
P/E 15 15 15 15 P/E 15 15 15 15
Target Price 200 220 244 269 Target Price 200 223 249 278
Target Market Cap 2,45,670 2,71,312 2,99,725 3,31,321 Target Market Cap 2,46,333 2,74,422 3,05,858 3,41,904
% upside 17.0% 29.2% 42.7% 57.7% % upside 17.3% 30.6% 45.6% 62.8%

• However, Demerger of the FMCG business and Hotel Business could unlock significant value as
o FMCG Business has the potential to trade at 35x EV/ EBITDA on a standalone basis
o Hotel Business has the potential to trade at 12-15x EV/ EBITDA on a standalone basis
• In case of Demerger, Non-FMCG Co (Mainly Cigarette is likely to trade at P/E Multiple of 12-13x
in line with other Global Tobacco Companies)

Val. Considering FMCG Demerger (FMCG - 12% Rev. CAGR) Val. Considering FMCG Demerger (FMCG - 18% Rev. CAGR)
Fy22 Fy23 Fy24 Fy25 Fy22 Fy23 Fy24 Fy25
EBITDA of FMCG 1,853 2,526 3,234 4,074 EBITDA of FMCG 1,952 2,804 3,782 5,020
Target EV/ EBITDA 35 35 35 35 Target EV/ EBITDA 35 35 35 35
Valuation of FMCG 64,850 88,422 1,13,180 1,42,606 Valuation of FMCG 68,324 98,149 1,32,361 1,75,709

EBITDA of Hotel 450 600 800 1,000 EBITDA of Hotel 410 600 800 1,000
Target EV/ EBITDA 14 14 14 14 Target EV/ EBITDA 14 14 14 14
Valuation of Hotel 6,300 8,400 11,200 14,000 Valuation of Hotel 5,740 8,400 11,200 14,000

PAT (Excl. FMCG/ Hotel) 13,332 15,387 16,576 17,868 PAT (Excl. FMCG/ Hotel) 13,332 15,387 16,576 17,868
Target P/E 13 13 13 13 Target P/E 13 13 13 13
Valuation of Other Seg. 1,73,310 2,00,036 2,15,485 2,32,281 Valuation of Other Seg. 1,73,310 2,00,036 2,15,485 2,32,281

Cumulative Market Cap 2,44,460 2,96,858 3,39,865 3,88,887 Cumulative Market Cap 2,47,374 3,06,585 3,59,046 4,21,990
Cumulative Target Price 199 241 276 316 Cumulative Target Price 201 249 292 343
% upside 16.4% 41.3% 61.8% 85.1% % upside 17.8% 46.0% 70.9% 100.9%

Diff. in Market Cap -1,210 25,546 40,140 57,566 Diff. in Market Cap 1,041 32,164 53,189 80,085
ITC – Potential for Value Unlocking Oct-20

• Post Demerger of FMCG & Hotel Business, there is potential to create additional shareholder
value of ~Rs. 55,000-80,000 Cr under different scenarios
• Most of the Large FMCG Peers trade at ~30-45x EV/ EBITDA on 1 Yr Fwd Consensus Estimates

Market Net Debt/ EV/ Sales EV/ EBITDA P/E EBITDA %

Particulars (INR Cr) CMP EV
Cap (Net Cash) Fy21 Fy22 Fy21 Fy22 Fy21 Fy22 Fy21 Fy22
Hindustan Unilever 2,144 5,03,710 -6,366 4,97,344 11.1 9.9 43.5 36.6 61.2 51.0 25.6% 27.0%
Nestle 15,865 1,52,968 -2,262 1,50,706 11.3 10.0 46.7 40.5 70.0 59.5 24.2% 24.8%
Britannia 3,470 83,526 435 83,961 6.3 5.8 34.5 32.7 45.0 43.0 18.4% 17.6%
Dabur 519 91,756 -1,671 90,085 10.1 8.9 46.7 40.4 56.2 48.7 21.5% 22.1%
Marico 359 46,304 -389 45,915 6.1 5.5 28.9 26.2 41.0 36.9 21.2% 21.1%
Godrej Consumer 681 69,657 2,185 71,842 6.9 6.3 31.1 27.7 43.0 38.1 22.3% 22.9%
Tata Consumer 473 43,571 -931 42,640 3.9 3.6 26.9 24.2 50.0 41.5 14.6% 15.1%

• ITC Hotels division has ~10,000 Rooms (Of which 50% are under management contract)
o Indian Hotels which is the largest listed Co in Hotel Segment has ~25,000 Rooms (Of which
50% are under management contract)
o Currently, Indian Hotels has a market cap of ~Rs. 12,000 Cr (Trading at ~13-15x EV/ EBITDA
based on forward estimates)
• Assuming Fy25 Earnings are discounted in the Share Price by Sep-24, Demerged entities have the
potential to generate 4-6% additional IRR over next 4 Years (Including Dividend)

FMCG 12% Rev. CAGR FMCG 18% Rev. CAGR

Merged Demerged Merged Demerged
IRR Calc. (Incl. Dividend) Difference IRR Calc. (Incl. Dividend) Difference
IRR Entity IRR IRR Entity IRR

Oct-20 -170 -170 Oct-20 -170 -170

Sep-21 8.9 8.9 Sep-21 8.9 8.9
Sep-22 10.6 10.6 Sep-22 10.7 10.7
Sep-23 11.8 11.8 Sep-23 11.9 11.9
Sep-24 13.0 13.0 Sep-24 13.3 13.3
Sep-24 269.3 314.4 Sep-24 278 341

IRR 18.4% 22.7% 4.3% IRR 19.3% 25.1% 5.8%

ITC – Potential for Value Unlocking Oct-20

Detailed Analysis

ITC has seen significant underperformance to Nifty Index and Nifty FMCG
Index led by P/E De-rating inspite of sustained profit growth in last 3-4 years

• Till 2017, ITC had been amongst leading performer in the Indian stock market having
significantly outperformed both Nifty Index and Nifty FMCG Index between 2000-2017

• However, over the last 3-4 years, ITC has significantly underperformed both Nifty Index
as well as Nifty FMCG index
ITC – Potential for Value Unlocking Oct-20

• Significant underperformance in the last 3-4 years has to a large extent reduced the
Alpha ITC had generated over last 17 years as compared to Nifty Index and Nifty FMCG
Index

• At CMP of Rs. 170/ share, ITC is trading at almost similar levels it had traded in 2012
o ITC’s Market cap has fallen from ~Rs. 3.93 Lac Cr in 2017 to ~Rs. 2.1 Lac Cr currently
o During same period, Hindustan Unilever’s Market cap has grown 3x from ~Rs. 1.5 Lac Cr to ~5
Lac Cr currently
ITC – Potential for Value Unlocking Oct-20

• In the same time period, Consolidated Profit has almost doubled from ~Rs. 7,400 Cr in
Fy13 to ~Rs. 15,300 Cr in Fy20 at a CAGR of ~11%

• ITC’s P/E Ratio has seen a significant de-rating from a peak of ~35x to ~15x over the last
3-4 Years

• During the same period, other FMCG peers like Nestle and Hindustan Unilever have
seen significant expansion in P/E and are currently trading at their all-time high
multiples
ITC – Potential for Value Unlocking Oct-20

Some of the key concern which have resulted in P/E de-rating are as follows:
1. Persistent selling by Large Global Investors in Tobacco companies globally due to ESG Concerns
• Tobacco Companies globally have seen significant P/E de-rating from there peak levels and
most companies are now trading at their lower P/E band

P/E Last 10 Yr
Market Net Debt/ Cy20/ Cy21/
All Figures (US$ Mn) CMP Avg P/E High P/E Low P/E
Cap (Net Cash) Fy21 Fy20
British American Tobacco
2,572 72,580 5,254 7.8 7.4 14.6 20.6 7.6
Philip Morris 74 1,15,940 2,495 14.6 13.1 17.3 24.5 13.1
Japan Tobacco 1,994 36,975 573 12.2 11.1 15.0 20.2 10.9
ITC 171 19,485 -37,859 15.2 13.0 26.7 32.7 13.8
Imperial Brands 1,300 15,133 1,396 5.0 4.9 11.4 16.9 4.9

• Even in case of ITC, there has been almost 750 bps reduction in FII shareholding which has
resulted in relentless selling thereby, keeping the stock price under pressure

ITC - Movement in Shareholding Pattern

Particulars Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Jun-20 Sep-20
British Amer. Tobacco 29.99 29.80 29.66 29.53 29.44 29.42 29.42
FII 20.49 20.08 18.00 17.04 14.65 14.60 12.96
Mutual Funds + AIF + Pvt. Ins 2.66 3.98 6.34 8.61 12.70 12.47 13.97
SUUTI 11.17 9.10 8.42 7.96 7.94 7.94 7.93
Govt. Ins Companies (Incl. LIC) 21.42 22.71 22.34 21.63 21.82 21.68 21.65
Others 14.27 14.33 15.24 15.23 13.45 13.89 14.07
100.00 100.00 100.00 100.00 100.00 100.00 100.00

2. Increased Capital Allocation to Capital intensive segments like Hotels which has diluted the
ROCE profile of the Company
• In the last 10 Years, ITC has spent ~Rs. 6,800 Cr on Capex in the Hotel Segment, however
generated EBITDA of ~Rs. 421 Cr in Fy20 and ~Rs. 385 Cr in Fy19
• Capex for both Hotel (~Rs. 6,800 Cr) and FMCG (~Rs. 6,900 Cr) have been funded through the
cash flows generated from the Cigarette segment.

Capital Expenditure in Hotel & FMCG

Hotel FMCG Total
Fy11 369 113 483
Fy12 765 277 1,041
Fy13 819 366 1,185
Fy14 298 466 763
Fy15 985 719 1,704
Fy16 384 815 1,199
Fy17 472 1,157 1,630
Fy18 918 836 1,754
Fy19 936 1,325 2,261
Fy20 857 860 1,717
Total Capex 6,804 6,933 13,737
ITC – Potential for Value Unlocking Oct-20

• While the Capex in the FMCG segment has helped ITC build a large and scalable FMCG
franchise, the Capex towards hotel segment has not yielded desirable results
• Going forward, management has guided for very low Capex in Hotel segment and focus on
growth through Asset light strategy i.e. mainly through Management contracts
• Capex on the FMCG segment spent towards building 10 integrated consumer goods
manufacturing units across India is largely over and going forward Capex intensity even in the
FMCG segment is expected to be reduced significantly
• In the last 5 Years, ROCE has come down from ~32.4% to 25.1% mainly led by the Capital
Allocation towards Hotel segment

Currently, Cigarette segment continues to have a dominant share (~90%) in

the EBIT pool of ITC
1. Inspite of Cigarette revenue contribution at only ~46% now, EBIT contribution from Cigarette
continues to remain high at 89-90%

Segment - Revenue & EBIT Mix %

Fy19 Fy20
Revenue EBIT Revenue EBIT
Mix% Mix% Mix Mix%
Cigarette 46% 91% 46% 89%
FMCG - Others 25% 2% 25% 2%
Agri Business 19% 5% 21% 5%
Hotels 4% 1% 4% 1%
Paper & Packaging 12% 7% 12% 7%
Others (Mainly IT) 4% 1% 4% 2%
Inter-Segment Elmination -11% -12%
Unallocated Corporate Exp -7% -6%
Total 100% 100% 100% 100%
ITC – Potential for Value Unlocking Oct-20

Inspite of High EBIT CAGR in FMCG segment over 5 Years, Cigarette will
continue to have more than 75% share in EBIT pool even by Fy25 which may
discourage large number of Global Funds following ESG to Invest in ITC
1. FMCG is expected to see a very strong growth trajectory over the next few years led by double
digit revenue growth and maturity of brands resulting in significant improvement in EBITDA
Margins over the next 3-5 years
• In the last 10 Years, FMCG EBITDA margins have seen an improvement from -7.4% in Fy10 to
7.1% in Fy20
• In the last 3-4 years, ITC has been consistently showing improvement of 100-200 bps annual
improvement in EBITDA margin
• In the next 5 years, EBITDA margin is expected to improve 150-200 bps p.a. and we expect
EBITDA margin to reach ~18% by Fy25
• FMCG Revenue CAGR at 12% is assumed largely on factoring in Organic basis + Smaller In-
Organic acquisitions

ITC - FMCG - Segment Performance - 12% Revenue CAGR

Fy21-Fy25
Particulars (INR Cr) Fy10 Fy15 Fy19 Fy20 Fy21E Fy22E Fy23E Fy24E Fy25E
CAGR
Net Revenue 3,634 9,011 12,498 12,844 14,386 16,112 18,045 20,211 22,636 12%
Y-o-Y 20.9% 11.3% 10.4% 2.8% 12.0% 12.0% 12.0% 12.0% 12.0%

EBITDA -268 212 688 914 1,295 1,853 2,526 3,234 4,074 33%
EBITDA % -7.4% 2.3% 5.5% 7.1% 9.0% 11.5% 14.0% 16.0% 18.0%
Y-o-Y -35.8% 28.3% 51.1% 32.8% 41.7% 43.1% 36.3% 28.0% 26.0%

Depreciation 178 373 489 550 625 700 750 800

EBIT -350 34 316 425 745 1,228 1,826 2,484 3,274 45%
EBIT % -9.6% 0.4% 2.5% 3.3% 5.2% 7.6% 10.1% 12.3% 14.5%
Y-o-Y -27.7% 56.2% 92.4% 34.6% 75.2% 64.9% 48.7% 36.0% 31.8%

2. After paying ~80% of PAT as dividend, ITC would still be left with ~Rs. 3,000-4,000 Cr of
Additional Cash p.a. going forward. Along with current cash pile of ~Rs. 30,000 Cr+ Cash Pile, Co
should be in position to enhance its FMCG growth through Value Accretive Acquisition

3. In the 2nd Scenario, we have assumed 18% Revenue CAGR for the FMCG segment led by larger
sized acquisition driving incremental growth

ITC - FMCG - Segment Performance - 18% Revenue CAGR

Fy21-Fy25
Particulars (INR Cr) Fy10 Fy15 Fy19 Fy20 Fy21E Fy22E Fy23E Fy24E Fy25E
CAGR

Net Revenue 3,634 9,011 12,498 12,844 14,386 16,975 20,030 23,636 27,890 18%
Y-o-Y 20.9% 11.3% 10.4% 2.8% 12.0% 18.0% 18.0% 18.0% 18.0%

EBITDA -268 212 688 914 1,295 1,952 2,804 3,782 5,020 40%
EBITDA % -7.4% 2.3% 5.5% 7.1% 9.0% 11.5% 14.0% 16.0% 18.0%
Y-o-Y -35.8% 28.3% 51.1% 32.8% 41.7% 50.8% 43.7% 34.9% 32.8%

Depreciation 178 373 489 550 625 700 750 800

EBIT -350 34 316 425 745 1,327 2,104 3,032 4,220 54%
EBIT % -9.6% 0.4% 2.5% 3.3% 5.2% 7.8% 10.5% 12.8% 15.1%
Y-o-Y -27.7% 56.2% 92.4% 34.6% 75.2% 78.2% 58.6% 44.1% 39.2%
ITC – Potential for Value Unlocking Oct-20

4. Inspite of almost 40-50% EBIT CAGR in the FMCG segment, Share of Cigarette in the EBIT mix is
likely to remain between 75-80% even after 5 years
• Cigarette: After a 10-12% drop in EBIT in Fy21, Fy22 expected to see high double digit EBIT
growth. Thereafter, we have assumed 8% EBIT growth in Cigarette segment
• Agri Business: Agri Business is expected to see 10% EBIT CAGR over Fy21-Fy25
• Paper & Packaging Business: This segment is expected to see 12% EBIT CAGR over Fy21-Fy25
• Hotel: Hotel segment performance is expected to remain subdued in Fy21-Fy22; Operations
expected to normalize from Fy23 onwards

CMP 170.7
Share O/s 1,231
Market Cap 2,10,047
Cash & Equivalents -37,859 Mar-20
EV 1,72,188

EBIT Projections - (FMCG - 12% Revenue CAGR)

CAGR % of EBIT
Fy19 Fy20 Fy21E Fy22E Fy23E Fy24E Fy25E
(Fy21-25) Mix (Fy25)
Cigarette EBIT 15,411 15,838 13,938 16,447 17,762 19,183 20,718 10.4% 76.6%
FMCG EBIT 316 425 745 1,228 1,826 2,484 3,274 44.8% 12.1%
Agri Business EBIT 793 830 913 1,004 1,104 1,215 1,336 10.0% 4.9%
Hotels EBIT 186 154 -200 100 200 350 500 1.8%
Paper & Packaging EBIT 1,239 1,305 1,240 1,389 1,556 1,742 1,951 12.0% 7.2%
Others EBIT (Mainly IT) 172 291 320 352 387 426 469 10.0% 1.7%
Unallocated -1,088 -1,135 -1,100 -1,125 -1,150 -1,175 -1,200 2.2% -4.4%
Total EBIT 17,029 17,709 15,855 19,394 21,686 24,225 27,049 14.3% 100.0%

Overall Projections - 12% FMCG Revenue CAGR

CAGR
Fy19 Fy20 Fy21E Fy22E Fy23E Fy24E Fy25E
(Fy21-25)
EBIT 17,029 17,709 15,855 19,394 21,686 24,225 27,049 14.3%
Other Income 2,108 2,505 2,600 2,600 2,600 2,600 2,600
Interest Cost 71 55 50 50 50 50 50
Exceptional 0 -132
Share of JV 12 8 10 10 10 10 10
PBT 19,078 20,035 18,415 21,954 24,246 26,785 29,609 12.6%
Tax 6,314 4,442 4,678 5,576 6,158 6,803 7,521 12.6%
PAT 12,764 15,593 13,738 16,378 18,087 19,982 22,088 12.6%
EPS 10.4 12.7 11.2 13.3 14.7 16.2 18.0
Dividend/ Share 10.0 8.9 10.6 11.8 13.0 14.4 12.6%
P/E 13.5 15.3 12.8 11.6 10.5 9.5
ITC – Potential for Value Unlocking Oct-20

EBIT Projections - (FMCG - 18% Revenue CAGR)

CAGR % of EBIT
Fy19 Fy20 Fy21E Fy22E Fy23E Fy24E Fy25E
(Fy21-25) Mix (Fy25)
Cigarette EBIT 15,411 15,838 13,938 16,447 17,762 19,183 20,718 10.4% 74.0%
FMCG EBIT 316 425 745 1,327 2,104 3,032 4,220 54.3% 15.1%
Agri Business EBIT 793 830 913 1,004 1,104 1,215 1,336 10.0% 4.8%
Hotels EBIT 186 154 -200 60 200 350 500 1.8%
Paper & Packaging EBIT 1,239 1,305 1,240 1,389 1,556 1,742 1,951 12.0% 7.0%
Others EBIT (Mainly IT) 172 291 320 352 387 426 469 10.0% 1.7%
Unallocated -1,088 -1,135 -1,100 -1,125 -1,150 -1,175 -1,200 2.2% -4.3%
Total EBIT 17,029 17,709 15,855 19,454 21,964 24,773 27,994 15.3% 100.0%

CAGR
Fy19 Fy20 Fy21E Fy22E Fy23E Fy24E Fy25E
(Fy21-25)
EBIT 17,029 17,709 15,855 19,454 21,964 24,773 27,994 15.3%
Other Income 2,108 2,505 2,600 2,600 2,600 2,600 2,600
Interest Cost 71 55 50 50 50 50 50
Exceptional 0 -132
Share of JV 12 8 10 10 10 10 10
PBT 19,078 20,035 18,415 22,014 24,524 27,333 30,554 13.5%
Tax 6,314 4,442 4,678 5,591 6,229 6,943 7,761 13.5%
PAT 12,764 15,593 13,738 16,422 18,295 20,391 22,794 13.5%
EPS 10.4 12.7 11.2 13.3 14.9 16.6 18.5
Dividend/ Share 10.0 8.9 10.7 11.9 13.3 14.8
P/E 13.5 15.3 12.8 11.5 10.3 9.2
ITC – Potential for Value Unlocking Oct-20

Valuation under Different Scenarios and Peer Comparison

• With ~75% of the Profit being contributed by Cigarette, in the current form ITC may continue to
trade at 14-16x P/E (At a premium to Global Tobacco companies for the option value towards
the FMCG business)

Val. without Demerger (FMCG - 12% Rev. CAGR) Val. without Demerger (FMCG - 18% Rev. CAGR)
Fy22 Fy23 Fy24 Fy25 Fy22 Fy23 Fy24 Fy25
EPS 13.3 14.7 16.2 18.0 EPS 13.3 14.9 16.6 18.5
P/E 15 15 15 15 P/E 15 15 15 15
Target Price 200 220 244 269 Target Price 200 223 249 278
Target Market Cap 2,45,670 2,71,312 2,99,725 3,31,321 Target Market Cap 2,46,333 2,74,422 3,05,858 3,41,904
% upside 17.0% 29.2% 42.7% 57.7% % upside 17.3% 30.6% 45.6% 62.8%

• However, Demerger of the FMCG business and Hotel Business could unlock significant value as
o FMCG Business has the potential to trade at 35x EV/ EBITDA on a standalone basis
o Hotel Business has the potential to trade at 12-15x EV/ EBITDA on a standalone basis
• In case of Demerger, Non-FMCG Co (Mainly Cigarette is likely to trade at P/E Multiple of 12-13x
in line with other Global Tobacco Companies)

Val. Considering FMCG Demerger (FMCG - 12% Rev. CAGR) Val. Considering FMCG Demerger (FMCG - 18% Rev. CAGR)
Fy22 Fy23 Fy24 Fy25 Fy22 Fy23 Fy24 Fy25
EBITDA of FMCG 1,853 2,526 3,234 4,074 EBITDA of FMCG 1,952 2,804 3,782 5,020
Target EV/ EBITDA 35 35 35 35 Target EV/ EBITDA 35 35 35 35
Valuation of FMCG 64,850 88,422 1,13,180 1,42,606 Valuation of FMCG 68,324 98,149 1,32,361 1,75,709

EBITDA of Hotel 450 600 800 1,000 EBITDA of Hotel 410 600 800 1,000
Target EV/ EBITDA 14 14 14 14 Target EV/ EBITDA 14 14 14 14
Valuation of Hotel 6,300 8,400 11,200 14,000 Valuation of Hotel 5,740 8,400 11,200 14,000

PAT (Excl. FMCG/ Hotel) 13,332 15,387 16,576 17,868 PAT (Excl. FMCG/ Hotel) 13,332 15,387 16,576 17,868
Target P/E 13 13 13 13 Target P/E 13 13 13 13
Valuation of Other Seg. 1,73,310 2,00,036 2,15,485 2,32,281 Valuation of Other Seg. 1,73,310 2,00,036 2,15,485 2,32,281

Cumulative Market Cap 2,44,460 2,96,858 3,39,865 3,88,887 Cumulative Market Cap 2,47,374 3,06,585 3,59,046 4,21,990
Cumulative Target Price 199 241 276 316 Cumulative Target Price 201 249 292 343
% upside 16.4% 41.3% 61.8% 85.1% % upside 17.8% 46.0% 70.9% 100.9%

Diff. in Market Cap -1,210 25,546 40,140 57,566 Diff. in Market Cap 1,041 32,164 53,189 80,085

• Post Demerger of FMCG & Hotel Business, there is potential to create additional shareholder
value of ~Rs. 55,000-80,000 Cr under different scenarios
• Most of the Large FMCG Peers trade at ~30-45x EV/ EBITDA on 1 Yr Fwd Consensus Estimates

Market Net Debt/ EV/ Sales EV/ EBITDA P/E EBITDA %

Particulars (INR Cr) CMP EV
Cap (Net Cash) Fy21 Fy22 Fy21 Fy22 Fy21 Fy22 Fy21 Fy22
Hindustan Unilever 2,144 5,03,710 -6,366 4,97,344 11.1 9.9 43.5 36.6 61.2 51.0 25.6% 27.0%
Nestle 15,865 1,52,968 -2,262 1,50,706 11.3 10.0 46.7 40.5 70.0 59.5 24.2% 24.8%
Britannia 3,470 83,526 435 83,961 6.3 5.8 34.5 32.7 45.0 43.0 18.4% 17.6%
Dabur 519 91,756 -1,671 90,085 10.1 8.9 46.7 40.4 56.2 48.7 21.5% 22.1%
Marico 359 46,304 -389 45,915 6.1 5.5 28.9 26.2 41.0 36.9 21.2% 21.1%
Godrej Consumer 681 69,657 2,185 71,842 6.9 6.3 31.1 27.7 43.0 38.1 22.3% 22.9%
Tata Consumer 473 43,571 -931 42,640 3.9 3.6 26.9 24.2 50.0 41.5 14.6% 15.1%
ITC – Potential for Value Unlocking Oct-20

• ITC Hotels division has ~10,000 Rooms (Of which 50% are under management contract)
o Indian Hotels which is the largest listed Co in Hotel Segment has ~25,000 Rooms (Of which
50% are under management contract)
o Currently, Indian Hotels has a market cap of ~Rs. 12,000 Cr (Trading at ~13-15x EV/ EBITDA
based on forward estimates)

• Assuming Fy25 Earnings are discounted in the Share Price by Sep-24, Demerged entities have the
potential to generate 4-6% additional IRR over next 4 Years (Including Dividend)

FMCG 12% Rev. CAGR FMCG 18% Rev. CAGR

Merged Demerged Merged Demerged
IRR Calc. (Incl. Dividend) Difference IRR Calc. (Incl. Dividend) Difference
IRR Entity IRR IRR Entity IRR

Oct-20 -170 -170 Oct-20 -170 -170

Sep-21 8.9 8.9 Sep-21 8.9 8.9
Sep-22 10.6 10.6 Sep-22 10.7 10.7
Sep-23 11.8 11.8 Sep-23 11.9 11.9
Sep-24 13.0 13.0 Sep-24 13.3 13.3
Sep-24 269.3 314.4 Sep-24 278 341

IRR 18.4% 22.7% 4.3% IRR 19.3% 25.1% 5.8%