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A lot of investors are confused whether ITC is a value stock or a value trap at this price point.
Honestly speaking,no company is perfect and if we start looking for perfect companies ,we wont be able to invest.
And like any other company,Even ITC has positives and negatives.
1/n
Honestly speaking,no company is perfect and if we start looking for perfect companies ,we wont be able to invest.
And like any other company,Even ITC has positives and negatives.
1/n
Let's start with Negatives :1)Profit contribution of FMCG business is negligible .
2)A victim of huge taxation and ESG norms .
3)No Promoter holding .
4)Hotel Business with low ROCE .
5)Government might sell its stake that MAY further have an impact on the price .
2/n
2)A victim of huge taxation and ESG norms .
3)No Promoter holding .
4)Hotel Business with low ROCE .
5)Government might sell its stake that MAY further have an impact on the price .
2/n
Now coming to the positives
Positives:
1)The Profit is increasing at a good rate as majority of the investments have been completed and the surplus would just increase the profits in FMCG .
2)No matter how much taxes the Government imposes on ITC,it passes on to the consumer.
3/n
Positives:
1)The Profit is increasing at a good rate as majority of the investments have been completed and the surplus would just increase the profits in FMCG .
2)No matter how much taxes the Government imposes on ITC,it passes on to the consumer.
3/n
Moreover,as approximately 90 pcnt of the market is unregulated,there is a good chance in future that government may impose strict rules in order to curb the illegal markets.And already being a leader,it knows how to capture more.
Coming to ESG , i don't consider this to be a reason for a fall in stock price .If that wouldve been the case Godfrey Phillips and VST who are entirely dependent on Cigarette and Tobacco would have not have seen a surge in the price .5/n
Now the hotel business has definitiely been a case of capital mis allocation and that is something i think ITC could have not done .But as a compensatory step ,they have moved to the asset light models . Plus just 4 % of the entire cash flows have been invested in hotels .6/n
Coming to government or SUUTI stake sale.This stake sale isn't going to affect the underlying fundamentals of the business in any way.Yes,short term slowdown in price may happen but in the long term,this would be just be a lost opportunity for those who wont invest at that price.
So,it is an opportunity for Long Term investors to invest in a company having an history of more than 100 years,having experienced various cycles ,great corporate governance,a warchest of around 25000 crores (which might be used for inorganic growth ) available at a mere 15 PE.
