Thread on ITC

ITC is one great case study in FMCG sector.

It gave great returns in past, however poor returns in last 5 years.

A great quality company may not be a good stock always. Can it be a good investment from hereon, here are my thoughts & please research further
Few of ITC brands

~ Aashirvaad
~ Sunfeast
~ Bingo
~ Kitchens of India
~ Yippee
~ B Natural
~ Mint O
~ Candyman
~ Fabelle
~ ITC Master Chef
~ Farmland
~ Essenza Di wills
~ Flama
~ Vivel
~ Savlon
~ Classmate
~ Homelite
~ Paperkraft
~ Gold Flake
~ Navy Cut
~ ITC Maurya
~ e-Choupal
Multiple businesses under ITC umbrella & respective approximate % revenue

1. Cigarette 41%
2. FMCG (non tobacco) 22%
3. Hotels 3%
4. Agri 19%
5. Paper, Paperboards, Packaging 11%
6. Others 4%
In my valuations framework, I would give the following price earnings multiple in terms of matured valuation during good times.

Business P/E
1. Cigarette 20
2. FMCG (non tobacco) 40
3. Hotels 5
4. Agri 20
5. Paper, Paperboards, Packaging 10
ITC is trying to diversify from sin (tobacco) sector to proper FMCG company. It will take lot of time due to intense competition.

Every other business it is into, commands a low multiple & capital intensive.

With FMCG growth, ITC stock will rerate.
One negative point is there is no real promoter or ownership at the moment.

Shareholding structure
1. Institutions (funds) ~58%
2. Corporate Bodies ~ 30%

This is a worth point to keep in mind from valuations perspective.

In addition, equity is extremely huge.
Company has good dividend policy which it has recently updated. It is intending to have dividend payout ratio as 80% to 85% of the PAT

This will result in good dividend yield & better than many fixed deposits

Though I don't believe in dividend yield stocks but this is different
Key challenges with ITC

~ Losing growth potential in tobacco business to other brands

~ FMCG business yet to perform to the level from where growth can be better predicted

~ Intense competition
Potential triggers in future for ITC

~ May demerge businesses to focus better

~ Non tobacco businesses show good growth with bigger brand value

~ Hotel business has good potential in very long term because of luxury aspect
At current levels, ITC is bound to attract investor attention.

It can easily end FY20 with 12+ EPS. Looking at the valuations, it has potential to give great returns.

It can be a good largecap portfolio stock from must consumption sector.

Research & decide....
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