Equity Research Report

Krushna Akele

FY 23-24
ITC Limited
₹ 428
BSE Code: 500875
MKT CAP: ₹ 5,34,783 Cr
52 Week High/Low: ₹500/₹378
 ITC Ltd
Target: N/A Holding Period: N/A Educational Report

Educational Equity Research Report

About the Business Company Snapshot
Established in 1910, ITC is the largest cigarette manufacturer and seller in the country. Mkt Cap ₹534,783 Cr
ITC operates in five buisiness segments at present FMCG Cigarettes, FMCG Others, High/Low ₹500/₹378
Hotels, Paperboards, Paper and Packaging, and Agri Business. On 17th april 2023, its Div Yield 2.98%
market value crossed the milestone of ₹500,000 crore (US$ 63 billion ) for the first P/E 26.10x
time in company's history, followed by crossing the ₹600,000 crore (US$ 75 billion) ROCE 36.39%
mark on 20 July 2023. ROE 27.13%

Financial Snapshot Mar-20 Mar-21 Mar-22 Mar-23 Shareholding Pattern

Revenue 49,388 49,257 60,645 70,919 Promotors 0.00%
EBITDA 20,355 18,351 21,161 27,085 FIIs 43.26%
PBT 18,628 16,648 19,368 25,198 DIIs 41.98%
Tax 4,442 4,555 5,237 6,438 Public 14.71%
Net Profit 14,187 12,092 14,131 18,760
NPM 29% 25% 23% 26%

Key Points about the company Research Analyst

•ITC is the leader in the organised domestic cigarette market with a market share of Krushna Akele
over 80%.
• Despite this vertical contributing only 40% to the revenues, it is the most profitable Financial Ratios
business of the company with 81% contribution towards PBIT. ROE 27.13%
• ITC has 25 mother brands spread across multiple FMCG sectors ROCE 36.39%
• ITC is the market leader in value added paperboards segment. It is also India’s ROA 21.86%
largest converter of paperboard into high quality packaging. NPM 23.30%
• Launched in 1975, ITC Hotels is one of the fastest growing hospitality chains in India. GPM 54.23%
It is the second-largest hotel chain in India, with 108 hotels at 70 locations in the Div Yield 2.98%
country EBIT Margin 32.04%
• ITC is the second largest exporter of agri products from the country. It trades in feed
ingredients, food grains, marine products, processed fruits, coffee, etc
• In Aug,23, the company has approved to dmerge its hotels business into a new
entity ITC Hotels Limited.
 ITC Ltd
Quarterly Performance Q3 FY24

• Resilient performance in FMCG – Others amidst subdued demand conditions; Segment Revenue up 7.6% YoY
on a high base; 2-yr CAGR +12.8%
• Cigarettes Segment witnesses consolidation on a high base after a period of sustained growth momentum

• Best ever quarter for the Hotels Segment; Segment Revenue and Segment PBIT up 18% and 57% YoY
respectively
• Agri Business Segment impacted by trade restrictions on agri commodities.
• Paperboards, Paper and Packaging Segment remains impacted by low priced Chinese supplies in global
markets,
•muted domestic
AA rating demand,
by MSCI surge
for the in wood costyear;
6th consecutive and high base effect
A- Leadership score under CDP ratings - ahead of Asia &
Global average; Continues to be included in the Dow Jones Sustainability Emerging Markets Index - a reflection
of being a sustainability leader in the industry.

Guidance
• In the energy side drink to protect the maket share the company is increasing the distrubution and
that is what is required right now.
ITC manufactured the entire spectrum of paperboards - from 100% virgin, food-grade boards which are made
from renewable and sustainable sources to 100% recycled boards.
• Expanding cigaretted market share on back of stable cigarete taxation, Augmenting distribution newtork in
the FMCG business.
• ITC is the market leader in vlaue aded paperboards segment. It is also India's largest converter of paperboard
into high quality packaging

Future Plans
• New spices facility at Guntru expected to be commissioned shortly and World-class manufacturing facility at
Mysuru for export of Nicotine & Nicotine derivative productss to US/EU is making steady progress.
• Total income form Infotech grew by ~17% to Rs 2884.30 crores vs previous year Rx 2469.29 crores.
• Nadiad unit in Gujrat commenced operation during Q2FY23
• In regard to weather vagaries, the company stated that there are always some mongths that are slightly
weather negative, and some month that weather is slightly positive.
 ITC Ltd
Industry Overview

• FMCG Businesses grew ahead of the industry in both urban and rural markets driven by enhanced distribution
footprint, superior last mile execution, deep consumer insights, purposeful innovation and portfolio
premiumisation. Discretionary/Out-of-Home categories witnessed strong growth driven by agile innovation and
relevant portfolio assortments across consumer cohorts and trade channels.
• The Business strengthened its market leadership position in the industry, delivering a competitively superior
performance driven by portfolio premiumisation.

Competition Overview
• ITC is india's largest and World's 5th largest leaf tobacco exporter
• Strong demand for the products across markets and normalcy in day-to-day activities transalated to solid
volume growth in CY 2022
• Investments in the business, despite pandemic led disruptions in the previous years, combined with significant
expansion in the distribution network contributed to increases sales.

ITC Revenue Breakdown

Revenue Breakdown
FMCG 27%
Cigaretted 40% 2%
Agriculture 21%
Hotels 2% 21% 27% FMCG
Cigaretted
Agriculture
Hotels

40%

• More than 2/3rd of revenues come from cigaretted & FMCG space for ITC Ltd.
 ITC Ltd
Brands Owned by ITC Ltd

ITC is a company that owns several FMCG brands12. Some of the major brands owned by ITC include:

• Aashirvaad
• Sunfeast
• Yippee!
• Bingo!
• Wills Lifestyle
• John Players
• Gold Flake
• Classmate
ITC Ltd
Management's Voice

The Indian economy remained a bright spot in FY 2022-23 amidst the global slowdown. The Government of
India has continued its thrust on structural reforms to raise India’s potential growth.

he Government of India has inspired the United Nations to declare 2023 as the ‘International Year of
Millets’. Your Company has spearheaded ‘ITC Mission Millets’, leveraging its enterprise strengths in
agriculture, food and hospitality to develop a ‘good-for-you’ product portfolio, implement sustainable
farming systems and enhance consumer awareness.

A big thrust on India’s Food Processing sector can play a pivotal role and have a multiplier effect. The
recently announced PLI Scheme for this sector is expected to play a critical role in boosting investments, agri
exports, farmer incomes, employment generation and building Indian brands for the global market. Your
Company has been included under the scheme for several of its Foods Businesses as well as Agri Business

ITC sustained its ‘AA’ rating by MSCI-ESG for the 5th successive year - the highest amongst global tobacco
companies. ITC has also been included in the Dow Jones Sustainability Emerging Markets Index for the 3rd
year in a row – a reflection of being a sustainability leader and a recognition of its continued commitment to
people and planet

ver the last five years, the Value-Added by ITC, i.e. the value created by the economic activities of your
Company and its employees, aggregated over ` 271000 crores, of which over ` 183000 crores accrued to the
Exchequer.

Legal cigarettes constitute only 8% of overall tobacco consumption in India. India accounts for less than 2%
of global cigarette consumption despite having 18% of the world’s population, making India’s per capita

Punitive taxes on the legal cigarette industry in earlier years have resulted in rapid growth in illicit cigarette
trade, making India the 4th largest illicit cigarette market globally according to Euromonitor estimates.

ITC's vibrant portfolio of over 25 world-class Indian brands, largely built through an organic growth strategy
in a relatively short period of time, represents an annual consumer spend of nearly ` 29000 crores and reach
over 230 million households in India

ITC Hotels Business, with its ethos of ‘Responsible Luxury’ scaled new heights with 12 of its iconic hotels
being the first in the world to receive the LEED Zero Carbon Certification; while 2 hotels became the first in
the world to be awarded the LEED Zero Water Certification
 ITC Ltd
Detailed Ratio Analysis

Financial Ratios Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23

Liquidity Ratios
Current Raio 1.12x 1.28x 1.59x 1.34x 1.24x 1.20x
Quick Ratio 0.48x 0.65x 0.84x 0.54x 0.49x 0.48x
Cash Ratio 0.25x 0.33x 0.62x 0.35x 0.32x 0.30x

Solvency Ratios
Debt to Equity 0.00 0.00 0.00 0.00 0.00 0.00
Debt to Capital 0.00 0.00 0.00 0.00 0.00 0.00
Financial Leverage 1.22 1.21 1.18 1.22 1.24 1.24
Debt to EBITDA 0.00 0.00 0.01 0.01 0.01 0.01
Interest Coverage 180.99 283.07 250.12 316.56 352.74 348.27
Debt to Assets 0.00 0.00 0.00 0.00 0.00 0.00

Efficiency Ratios
Inventory Turnover 5.80x 6.15x 5.56x 4.74x 5.58x 6.02x
Fixed Asset Turnover 2.63x 2.50x 2.27x 2.11x 2.50x 2.74x
Total Asset Turnover 0.68x 0.67x 0.64x 0.67x 0.79x 0.83x

Profitability Ratios
Return on Equity 25.80% 21.02% 21.73% 20.04% 22.63% 27.13%
Return on Capital Employed 37.26% 31.81% 28.54% 27.56% 30.98% 36.39%
Return on Assets 21.09% 17.33% 18.35% 16.39% 18.31% 21.86%

Margin Ratios
Gross Margin 65.24% 68.24% 63.12% 62.03% 56.51% 54.23%
EBITDA margin 43.05% 47.91% 41.81% 41.21% 37.26% 34.89%
EBIT Margin 40.36% 45.06% 38.92% 37.88% 33.91% 32.04%
PBT Margin 40.24% 44.80% 38.77% 37.72% 33.80% 31.94%
 ITC Ltd
DuPont Analysis

Financial Ratios Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23

DuPont Analysis for ROE
Net Profit Margin 27.27% 31.18% 25.71% 28.72% 24.55% 23.30%
Asset Turnover 67.63% 67.38% 63.88% 66.78% 78.56% 82.63%
Equity Multiplier 1.22x 1.21x 1.18x 1.22x 1.24x 1.24x
Return on Equity 22.56% 25.49% 19.46% 23.45% 23.84% 23.90%

DuPont Analysis for ROA

Net Profit Margin 27.27% 31.18% 25.71% 28.72% 24.55% 23.30%
Asset Turnover 67.63% 67.38% 63.88% 66.78% 78.56% 82.63%
Return on Assets 18.44% 21.01% 16.43% 19.18% 19.29% 19.25%

Decomposing the ROE for ITC Ltd

DuPont Analysis shows the exact reason why ROE of a company is increasing or decreasing, it decomposes the
ROE to its main causes, viz NPM, Total Asset Turnover & Financial Leverage. We have decomposed the ROE for
ITC Ltd & as you can see that over the years the increase in the ROE was due to the fact that the company is
generating more revenue from its assets and is using its resources more efficiently, Also equity multiplier
decreased from 1.18 to 1.24 as of the latest financial year.

We further believe that the company will become more profitable & it will expand its ROE further on the basis of
expansion in Net Profit Margin.

ROE Trend ROA Trend

30.00% 20.00%
25.00% 19.00%
20.00% 18.00%
15.00% 17.00%
10.00% 16.00%
5.00% 15.00%
0.00% 14.00%
Jan-20 Jan-21 Jan-22 Jan-23 Jan-20 Jan-21 Jan-22 Jan-23
ITC Ltd
Disclaimer

The following analysis on ITC Ltd is provided for educational purposes only and should not
be considered as investment advice. The information presented herein is based on
publicly available data and sources believed to be reliable. However, no representation or
warranty, expressed or implied, is made as to its accuracy, completeness, or reliability.

This equity research on ITC Ltd does not constitute a recommendation or solicitation to
buy, sell, or hold any securities or financial instruments. It is essential to understand that
investing in securities involves risks, and past performance is not indicative of future
results. Before making any investment decisions, it is strongly recommended to seek the
guidance of a SEBI registered financial advisor or qualified professional who can assess
your specific financial situation, risk tolerance, and investment objectives. They can
provide personalized advice based on your individual circumstances. The analysis
provided herein is subject to change without notice and may not be updated regularly.

The future performance of ITC Ltd or any other securities mentioned in this research may
differ from the information presented due to various factors, including market conditions,
economic trends, and company-specific developments.

The author of this report (Krushna Akele) do not assume any liability for any direct or
indirect losses or damages that may arise from the use of this research on ITC Ltd on the
information provided herein. Investors are solely responsible for their investment
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