EQUITY RESEARCH REPORT: ITC LTD.

Investment Banking

Submitted by: Group 2

Pranshu Porwal 1237
Aman Kumar 1204
Harshit Verma 1224
Vikesh Kumar 1268

Submitted to:
Prof. Archana Patro
 1. Summary

One of India's top private sector businesses is ITC Ltd. Cigarettes, hotels, paperboards and
specialty papers, packaging, agribusiness, packaged foods and confectionery, information
technology, branded apparel, personal care, stationery, safety matches, and other FMCG
products are just a few of the industries in which ITC has a diversified presence. Even in its
young industries, such as packaged foods and confectionery, branded apparel, personal care, and
stationery, ITC is rapidly gaining market share. ITC is an outstanding market leader in its
traditional businesses, such as cigarettes, hotels, paperboards, packaging, and agri-exports.

ITC Infotech India Ltd., a completely owned subsidiary of ITC, offers major international clients
IT services and solutions. ITC Infotech has established a place for itself by providing cutting-
edge IT solutions to solve customer problems. Numerous national and international awards for
quality, productivity, safety, and environmental management systems have been given to ITC's
production facilities and hotels. The first business in India to voluntarily apply for a corporate
governance rating was ITC.

Imperial Tobacco Company of India Ltd. was the name under which ITC was formed on August
24, 1910. The name of the business was changed from Imperial Tobacco Company of India Ltd
to India Tobacco Company Ltd in 1970 and then to I.T.C. Ltd in 1974 as the ownership of the
business gradually became more Indian. The full stops in the company's name were eliminated
with effect from September 18, 2001, in recognition of the company's multi-business portfolio,
which includes a wide range of businesses including Cigarettes & Tobacco, Hotels, Information
Technology, Packaging, Paperboards & Specialty Papers, Agri-business, Foods, Lifestyle
Retailing, Education & Stationery, and Personal Care. The business is now known as ITC Ltd.

The seventies saw the start of a corporate transition that would usher in significant changes in the
life of the company. The first six decades of the company's history were primarily focused on the
expansion and consolidation of the Cigarettes and Leaf Tobacco industries. The corporation
established the Packaging & Printing division in 1925 as a tactical backward integration for
ITC's Cigarettes division. Today, it is India's most modern packing facility.
 2. The Economy

The Indian economy can best be described as an evolving hybrid social market economy. It is
the world's third largest economy by purchasing power parity and the fifth largest economy by
nominal Gross Domestic Product (PPP). Based on per capita income (PPP), India ranks 142nd
in nominal GDP and 125th in GDP measured at purchasing power parity by the International
Monetary Fund (IMF). From the Declaration of Independence in 1947 to the Declaration of
the Republic in 1991, all 4,444 governments have pursued protectionist economic policies
and have been heavily involved in government participation and economic regulation.
This phenomenon manifesting itself in the size of the license is called "dirigism". After the
end of the Cold War, in response to the severe balance of payments crisis of 1991, India opted
for comprehensive economic liberalization. Since the beginning of the 21st century, average
annual GDP growth has fluctuated between the two, 6% and 7%, with India having the fastest
GDP growth between 2013 and 2018 and now overtaking China to become the world's
fastest growing country. It has become the largest economy. I was. Before the colonial
period began in the early 19th century, the economy of the Indian subcontinent was
the largest in the world for most of recorded history. According to the Purchasing Power
Parity Index, India's contribution to the global economy is her 7.5% of the
total economy (PPP).

Long-term development prospects for India's economy remain favorable due to the country's
young population and low dependency rate, healthy savings and investment rates,
India's growing globalization and India's growing integration into the world economy is. This
is because India is becoming more and more integrated into the international community. A
slowdown in economic activity occurred in 2017 as a direct result of the
2016 “demonization” and the shock caused by the introduction of the 2017 Goods and
Services Tax. This slowness was what he experienced in 2017
[56] About 70% of India's gross domestic product comes from domestic spending on goods and
services.
It remains her sixth largest consumer market in the world, a position the
country maintains. [58] India's gross domestic product growth is driven by
a variety of factors, including private consumption, government spending, investment and
exports. In 2020, the pandemic had a negative impact on trade. India has been hit particularly
hard as it is her 14th largest importer and 21st largest exporter in the world. India has
been actively involved in the activities of the World Trade Organization since early 1995. Both
the Ease of Doing Business Index and the Global Competitiveness Report rank India 63rd and
68th respectively. Very vulnerable. A total of 50 million (or 500 million) people work in India,
making it her second largest workforce in the world. India has one of the highest number
of millionaires per capita in the world, but it also has the most unequal income distribution on
record. With so many tax exemptions, only about 2% need to pay income tax in India.

The economy plunged into a temporary recession this year as a result of the global financial
crisis that began in 2008. India has taken various measures, both fiscal and monetary, to
stimulate the economy in hopes of picking up economic activity and increasing consumer
demand. In the years immediately following the recession, the pace of economic
growth accelerated. According to the World Bank, India needs public sector reform,
infrastructure, agriculture and rural development, deregulation of land and labor, financial
inclusion, and promotion of private sector investment and exports to achieve sustainable
economic development. And so India needs to prioritize different areas. , education, public
health
[citation needed]

United States, China, United Arab Emirates (UAE), Saudi Arabia, Switzerland, Germany, Hong
Kong, Indonesia, South Korea and Malaysia will be India's top 10 trading partners in 2020 will
be India received a total of USD 74.4 billion in foreign direct investment (FDI) in FY2019-
20. The three industries with the highest foreign direct investment (FDI) were services,
computers and telecommunications. India, Association of Southeast Asian Nations (ASEAN),
North American Free Trade Agreement (NAFTA), Mercosur, South
Korea, Japan and many other countries.
Industry and agriculture together employ the majority of the labor force, but the service
sector remains the fastest growing sector, accounting for half of GDP. Both the Bombay
Stock Exchange and the National Stock Exchange are among the largest stock exchanges in the
world in terms of market capitalization. India is her sixth largest producer in the world,
accounting for her 2.6% of the total output of all producers worldwide. Rural India is home
to approximately 66% of India's total population and accounts for approximately 50% of the
country's gross domestic product. Foreign exchange reserves are her $588.314 billion, making
her the fourth richest country in the world. India's national debt is huge, accounting for 86%
of the country's GDP, while India's budget deficit accounts for just her 6.7% of the country's
GDP. Credit expansion stalls as rising non-performing loans struggle for India's state-owned
banks

Population 1,417,173,173

GDP $3.47

$11.665 trillion (PPP)

GDP rank 5th

(nominal; 2022)

3rd (PPP; 2022)

GDP growth Increase 8.7% (2021e)

Increase 6.8% (2022f)

Increase 13.5% (Q1 2022-23)

Increase 6.1% (2023f)

GDP per capita Increase $2,466 (nominal; 2022

est.)

Increase $8,293 (PPP; 2022 est.)

GDP per capita rank 143rd
(nominal; 2022)

127th (PPP; 2022)

GDP by sector Agriculture:

16.38%

Industry: 29.34%

Services: 54.27%

(FY 2020-21)

GDP by component Household

consumption: 60.8%

Government consumption: 12.1%

Investment in fixed capital: 26.6%

Other source: 0.9%

Exports of goods and services: 18.7%

Imports of goods and services: −19.1%

(2020-21 est.)

Inflation (CPI) Negative increase 7.41%

(September 2022)
 3. The Industry

Food & Beverage, Personal Care, Health & Household Goods) and Distribution Channels (Supermarkets
& Hypermarkets, Grocery Stores, Specialty Stores, E-Commerce, etc.), 2018-2025 Opportunity Analysis
and Market Projection Global Opportunity Analysis and Market Projection by Product Type (Food &
Beverage, Personal Care, Healthcare & Household Products) and Distribution Channel (Supermarkets &
Hypermarkets, Grocery Stores, Specialty Stores).

) At a CAGR of 5.4%, Fast Moving Consumer Goods, or FMCG, are also known as Consumer Packaged
Goods. This item is offered at a discounted price. This has been the driving factor behind the tremendous
rise of the FMCG industry over the past decade.

In 2018, the food and beverage segment accounted for the highest share of the FMCG market, and this
trend is anticipated to continue throughout the projected period.

The top 10 FMCG companies (2014) are as follows:

Nestle S.A., The Procter & Gamble Company, Anheuser-Busch InBev, Philip Morris International Inc. ,
Coca-Cola Company, Pepsico Inc., Unilever, etc.
The major FMCG market Industry in India mainly comprises of;

3.1 HOUSEHOLD CARE

Demand for home care is growing rapidly in India. Over the past five years, annual growth
rates have fluctuated between 10% and 11%. Urban consumers prefer laundry
detergents and detergents to idiots due to increased use of washing
machines, strengthened purchasing power, and focus on advertising. Consumers continue to use
bars in remote areas. In the case of detergents, small and disorderly players dominate most of
the market. In terms of customer satisfaction, HUL's Vim bars lead the market. We provide
excellent products and services, and are continuously developing new products such as Anti-
Germ Bar and Monthly Tub Pack. Among many other dishwashing detergents, Vim liquid
dishwashing detergent is the most popular. Meanwhile, HUL's Domex has once again
become the leading FMCG product in the toiletries category.

3.2 Personal care

The annual cost of personal care products in India is estimated at US$ 4 billion
(Cro 25,144). Hair care, skin care, color cosmetics, bath and shower products,
and fragrances are some of the prime locations.
Different trends are observed in different segments. The largest category of these products
is soap bar, followed by hair care products.
Over the past five years, bar soap sales have grown at an average annual rate of 5%, while hair
care products have grown at an average annual rate of 9-10%.
• In the Indian hair oil market, coconut oil accounts for 72% of the market. The skin care market
in India is still in its infancy. People are becoming more aware of this as their lifestyles change,
their finances rise, and more options become available. Oral care, which is also an essential
aspect of personal hygiene, is separated into toothpaste, toothpaste, and toothbrush, which
account for 60%, 23%, and 17% of the market, respectively.

3.3 HOSPITALITY

The COVID outbreak has had a substantial detrimental impact on the global travel and tourist
industry during the previous two years. The proportion of the industry to global GDP fell from
10.3% in 2019 to 5.3% in 2020 before rebounding to 6.1% in 2021. According to the World
Travel and Tourism Council, the travel and tourism industry would only be able to add 18
million jobs in 2021, after losing 62 million jobs in 2020. According to the United Nations
World Tourism Organization (UNWTO), despite a 4% increase in 2021 on a shaky base, foreign
visitor visits are still 72% lower than pre-pandemic levels. The travel and tourism business is
also extremely important, with a direct and indirect economic influence on the Indian economy
estimated to be 10% of GDP (at pre-pandemic levels). The tourist value chain, which includes
hotels, travel agencies, airlines, travel agencies, restaurants, travel transportation, tour guides,
and so on, has one of the greatest economic multiplier effects of any business. The outbreak has
had a huge negative impact on tourism in India since the beginning of 2020.
Domestic air passenger traffic plummeted by more than 40% in 2021 compared to pre-pandemic
levels, and international tourist arrivals decreased by 87%, affecting the whole hospitality sector.

3.4 PAPERBOARDS, PAPER, AND PACKAGING

Paperboards and specialty papers After a considerable drop in FY 2020-21, global demand for
paper and paperboards increased by roughly 10% in FY 2021-22. Due to strong demand from
end-user industrial divisions, the paperboards section is anticipated to have expanded more
swiftly, at a pace of approximately 11-13%. Because of rising worldwide demand for virgin
grades and continued supply chain difficulties, international fibre prices were persistently high
throughout the year. Writing and printing paper grew at a slow pace of 5-7% after seeing a
significant fall in FY 2020-21, despite educational institutions and workplaces continuing to
operate with some of their doors partially closed. Demand in the Indian business expanded
strongly across the majority of end-user categories, led by the consumer goods, pharmaceutical,
food service, and e-commerce sectors.

3.5 FOOD AND DRINKS

Food and beverages rank fifth in India in terms of production, growth, consumption, and export.
The packaged food segment is expected to increase at a rate of 9% per year, reaching a value of
Rs. 6 lakh crore by the end of 2030. Over the next three years, the ready-to-drink tea and coffee
business is expected to be worth $2,200 crore. The overall volume of soft drinks, including both
soda and juice, is predicted to surpass one billion dollars. Coca-Cola and Pepsi are leaders
in the soft drink market in India.
 The following figure shows us the market segment of people in India in different category of
FMCG products.

4. The Company

FMCG Businesses
o India’s Leading FMCG marketer
o 25+ Mother Brands in Foods, Personal Care Products, Education & Stationery Products, Agarbattis &
Matches
o Annual consumer spend of over ₹24,000 crores o Exporting to over 60 countries
o Products reach over 200 million households in India
o Products available in nearly 7 million retail outlets in India
o ITC e-Store: 45+ categories, over 700 products
o Extensive digital adoption across manufacturing, distribution, consumer insighting

ITC Hotels
o Trailblazer in 'Responsible Luxury' & Sustainability
o One of India's pre-eminent hospitality chains
o 113 hotel properties in over 70 locations o Iconic Cuisine Brands
o All luxury collection hotels are LEED® Platinum certified
o ITC Hotels and Welcomhotels have achieved the global 2030 Carbon emissions targets well ahead of
time
o ITC Windsor, ITC Grand Chola and ITC Gardenia - first three LEED® Zero Carbon Hotels in the
world

Agri Business
o Powering NextGen Agriculture through value addition, digital adoption and climate smart
agriculture
o Extensive engagement with farmers for over 100 years
o ITCMAARS*- bringing the power of digital technologies to farmers
o ITC e-Choupal has empowered 4 million farmers
o Sourcing over 4 mn tonnes of agri produce from 22 states
o Supporting over 20 value chain clusters
o Largest procurer of wheat after the Government’s FCI
o One of India's largest exporters of agri commodities

Paperboards & Packaging Businesses

o One of India's largest, greenest and most technologically advanced
o Clear leader in the Value-added Paperboards segment
o Leading provider of superior value-added packaging solutions
o Anchoring local forestry value chains, empowering farmers, enhancing green cover
o First in India to obtain Forest Stewardship Council-Forest Management (FSC-FM)
o Extensive use of Industry 4.0 technologies
o Pioneer in sustainable packaging

ITC Infotech
o Wholly owned subsidiary of ITC Limited
o Leading global technology services and solutions provider with presence in 29 countries
o Partner of choice for customers in their Digital Transformation and Software as a Service (SaaS)
adoption journey
o One of industry’s largest organizations of Product Lifecycle Management services expertise
o Focus on sharpening domain-led offerings in Digital Manufacturing Solutions, Digital Workplace
Solutions, Core Hospitality Automation and Customer Experience
o Business-friendly solutions leveraging strategic pillars of Customer Centricity, Employee Centricity and
Operational Excellence
 5. The Financials & Ratios

Key Financial Ratios ------------------- in Rs. Cr. -------------------

Mar '22 Mar '21 Mar '20 Mar '19 Mar '18

Investment Valuation Ratios

Dividend Per Share 11.50 10.75 10.15 5.75 5.15
Operating Profit Per Share (Rs) 15.36 12.61 14.57 14.12 12.73
Net Operating Profit Per Share (Rs) 45.72 36.95 37.11 36.71 33.29
Bonus in Equity Capital 90.32 90.43 90.55 90.80 91.20
Profitability Ratios
Operating Profit Margin(%) 33.60 34.12 39.24 38.46 38.25
Profit Before Interest And Tax Margin(%) 29.32 28.64 33.60 33.68 33.66
Gross Profit Margin(%) 30.67 30.69 35.82 35.54 35.43
Net Profit Margin(%) 26.72 28.65 33.17 27.70 27.62
Liquidity And Solvency Ratios
Current Ratio 1.62 1.52 1.90 1.80 1.68
Quick Ratio 0.89 0.76 1.18 1.16 1.02
Debt Coverage Ratios
Interest Cover 473.69 362.58 347.36 540.46 190.71
Inventory Turnover Ratio 5.98 5.12 5.82 6.03 6.13
Debtors Turnover Ratio 27.87 21.75 15.90 14.99 17.80
Investments Turnover Ratio 0.94 0.79 0.74 6.03 6.13
Fixed Assets Turnover Ratio 1.94 1.71 1.78 2.03 2.24
Total Assets Turnover Ratio 0.96 0.81 0.72 0.78 0.80
Asset Turnover Ratio 0.94 0.74 0.75 0.82 0.84
Number of Days In Working Capital 24.71 37.89 59.17 42.30 28.25
6. The Valuation
7. ITC Technical Analysis

●
8. Indices Containing the ITC Ltd Share
● nifty 50, nifty 100
● nifty 500
● nifty 200
● nifty FMCG
● NIfty India Consumption
● Nifty Dividend Opportunities
● Nifty Growth Sector 15
● Tr India 50

9. The Risks

● Profitability and cash generation are heavily skewed towards the cigarettes business, which is not
expected to see any significant recovery in the short term.
● Punitive taxation by the government on the cigarettes business could increase the illegal sales of
the product.
● Investors that emphasize on strong ESG values tend to exclude ITC because of the nature of its
business even though the company is one of the highest rated ESG companies in the world. ESG
acceptance becomes more widespread resulting in further shrinkage in valuations.
● Hospitality sector is one of the worst affected by the ongoing pandemic and now with the coming
of the second wave, recovery in this business may be further prolonged, which would impact ITC.
Poor capital allocation in the future can lead to lower returns for the company.
● Potential sale of the 7.93% government stake in ITC held by SUUTI.
● Potential change in smoker behaviour (especially fringe smokers) post the lockdown period
Balance Sheet
Profit & Loss Account
Conclusion
Over the years, ITC share has fallen from the high of Rs 340 in 2017 to currently at Rs 250. The
reason is their Cigarette business which is also known as the SIN business. Over the last few
years, FII has consistently reduced its stake in ITC from 18% on Mar 18 to currently at 13%.
There is a lot of pressure on the tobacco business due to an increase in tax. However, ITC is
consistently increasing its FMCG business and in the next 3-5 years, food and personal care
would contribute more to the revenues. Currently, it is investing a lot of money in its FMCG
business. Those who are looking to invest for the next 5-10 years should have ITC in their
portfolio.

References
file:///C:/Users/Harshit/Downloads/ITC-22.pdf
file:///C:/Users/Harshit/Downloads/IDirect_ITC_Q2FY23.pdf
https://www.itcportal.com/about-itc/shareholder-value/annual-reports/itc-annual-report-2022/pdf/ITC-
Report-and-Accounts-2022.pdf
https://en.wikipedia.org/wiki/Economy_of_India
https://tobaccoboard.com/indexeng.php