ITC Limited

CMP: 217
Rating: HOLD
Target Price : 235

Stock
Information:
ITC, founded in 1910, is an Indian diversified conglomerate with
NSE ITC businesses spanning Fast Moving Consumer Goods, Agri Business,
BSE 500875 Paperboards and Packaging, Hotels, and Information Technology.
Sector FMCG FMCG portfolio consists of packaged foods, personal care, Education
Face Value In Rs. 1 & Stationary, life style retailing, agarbattis, safety matches, cigarettes.
INR ITC started hotel business in 1975 and currently operates 110 hotel
Mkt Cap (INR ₹ 2,61,239.93 Cr
properties in 74 locations.
Cr)
52w H/L 265.30 / 199.10
The company is also doing Paper boards and packaging with the
market leading positions.
150 It operates in 13 business across 5 segments. The segments are (FMCG,
140 Hotels, Paper boards & Packaging, Agri business and Information
130
120
Technology.
110
100
Valuation:
90 Cigarettes in good health despite near-term overhang: The cigarettes division adds to
Jun-20

Nov-20
Dec-20
Jul-20

Oct-20
Apr-20
May-20

Aug-20
Sep-20

Feb-21
Mar-21
Jan-21

~84% of ITC's benefits. Against the backdrop of strong demographics, we believe that
cigarette volumes will recover once Covid threat subsides, driven by (1) improving
consumer sentiment, (2) recovery in rural consumption (upgrade from bidi to mini
ITC Nifty 50
cigarette) which forms 2/3rd volume share, (3) improving standard of living, (4) stable tax
environment and (5) curbing illicit trade.
FMCG business is in sweet spot: ITC's FMCG business acquired force because of COVID-19
as income in 9MFY21 developed by 14% Y-o-Y, while EBIT saw 2.3X development (driven by
cleanliness and individual consideration classes) as edges multiplied. Exploiting the ideal
market, the organization concocted 100+ dispatches post lockdown. ITC, in its bundled food
portfolio, has effectively fabricated power brands like Aashirvaad, Sunfeast and Bingo. Its
qualities are in reverse reconciliation, enormous hunger to put resources into brands, and
container India dissemination.

It is currently trading at 17.70X/15.8x of FY23E/FY24E P/E with EPS at 13.8 / 14.97. We are
valuing ITC at 15.80x FY24E P/E ABV to arrive at a target price of INR 235. Looking at this we
At CMP of INR 217, the stock have a HOLD recommendation as it can show a 8.2% Upside move in coming time.
is trading at 18.8x its FY21
Capital allocation concerns resolved, expect favorable returns, going ahead: Major capital
earnings with EPS (TTM) at
allocation or the major capex in hotels and FMCG which has been taken placed and the
11.5 for FY21. We have
company has also developed major footprints in hotels and FMCG sectors. ITC has changed
positive outlook on the stock.
its dividend payout ratio to 80-85% vs. ~67% earlier, highlighting the commitment towards
shareholder wealth creation.
 Segments in ITC
Foods
ITC's Branded Packaged Foods Business is one of the fastest growing foods businesses in India.

AASHIRVAAD is India's No. 1 in Branded Atta with an annualised consumer spend of nearly 6,000cr.

Sunfeast is No. 1 in Premium Cream Biscuits with an annualised consumer spend of over 4,000 cr.

Personal Care
ITC forayed into the Personal Care business in July 2005.

Engage is India’s No 2 in Deodorants Segments.

Fiama is India’s No 2 in Shower Gel Segments.

Education & Stationery

ITC made its entry to the education and stationery business with its Paperkraft brand in the premium
segment in 2002. By 2007, Classmate became the largest Notebook brand in the country.

Classmate is the Market leader in Notebooks segment with an annualised consumer spend of nearly Rs
1400 cr.

Cigarettes
ITC is the market leader in cigarettes in India. With its wide range of invaluable brands, ITC has a leadership
position in every segment of the market.

ITC's wide range of brands, includes Insignia, India Kings, Classic, Gold Flake, American Club, Wills Navy Cut,
Players, Scissors, Capstan, Berkeley, Bristol, Flake, Silk Cut, Duke & Royal.

ITC Hotels
Launched in 1975, ITC Hotels, India's premier chain of luxury hotels, has become synonymous with Indian
hospitality.

ITC Hotels operates 110 hotel properties in 74 locations.

30 Five-Star Deluxe / Five-Star Properties with nearly 6200 rooms.

45 Fortune Hotels with nearly 3300 rooms.

35 Welcome Heritage Properties with nearly 900 rooms.

Agri Business
ITC Agri Business is one of the leading domestic players and exporters of numerous agricultural
commodities.

No. 1 in Leaf Tobacco in agri business.

Other Agri businesses are

Feed Ingredients - Soya meal

Food Grains - Wheat & Wheat Flour, Rice, Pulses, Barley & Maize
Marine Products - Shrimps and Prawns

Processed Fruits - Fruit

Purees/Concentrates, IQF/Frozen Fruits

REVENUE BREAKUP Q2FY22

Cigarattes Others
Hotels Agri Business
Paperboards, Paper & Packaging Inter Segment revenue

8%
12%
36%

17%

2%
25%

Key Quarter Results Highlights:

• Strong pick-up across all operating segments after severe disruptions in Q1 ̶ Sequentially, Revenue (ex. Agri)
up 12%; EBITDA up 16%
• FMCG conveys versatile execution becoming on a high base quarter; Revenue up 23% versus Q2 FY20 and 8%
successively ̶ Segment EBITDA at 403 cr., up 35% successively and 82% over Q2 FY20
• Segment EBITDA Margins supported at 10% despite extraordinary ware expansion ̶
• Conclusion of instructive organizations keeps on affecting Education and Stationery Products Business
• Stamped improvement in Occupancy (3x of Q2 FY) drives quicker recuperation in hotels ̶ Leisure objections
keep on performing admirably while Business travel builds up speed
• Paperboards, Paper and Packaging Segment conveys solid execution; Segment Revenue up 25% y-o-y ̶
Paperboard’s volumes at record high ̶ Robust execution supported by recovery of interest across most end-
client portions.
• Solid development in Agri Business outside income driven predominantly by Wheat, Rice and Leaf tobacco
trades, utilizing solid client connections and strong obtaining network
Key Financial Highlights
Income statement
Particulars Q2FY21 Q1FY22 Q2FY22
Revenue (cr) 12,077 13,247 13,757
Cost of Sales 4,761 5,807 5,473
Employee Cost 1,070 1,172 1,219
Other Expenses 1,844 1,825 2,048
EBITDA (cr) 4,401 4,444 5,018
EBITDA Margin (%) 36.4% 33.5% 36.5%
Depreciation 405 414 422
Interest expense 13 9 10
Other income 582 447 469
Share of profits associate & JV (5) 1 3
Profit before tax 4,560 4,468 5,058
Taxes 1,147 1,124 1,291
Minorities and other - - -
Net profit (cr) 3,413 3,344.150 3,766
Net profit margin (%) 28.3% 25.2% 27.4%
Other Comprehensive income 150 234 163.3
Net profit 3,564 3,578 3,930
EPS 2.8 2.72 3.1

Charts
14,000 13,757 5,200 36.4% 36.5% 37%
5,018
13,500 13,247 5,000
36%
13,000 4,800
33.5%
12,500 4,600 35%
12,077 4,401 4,444
12,000 4,400
34%
11,500 4,200

11,000 4,000 33%

Q2FY21 Q1FY22 Q2FY22 Q2FY21 Q1FY22 Q2FY22

Revenue (cr) EBITDA (cr) EBITDA Margin (%)

4,000 29%

28.3% 3,766
3,800
28%

3,600 27.4%
3,413 27%
3,400 3,344.150

26%
3,200

25.2%
3,000 25%
Q2FY21 Q1FY22 Q2FY22

Net profit (cr) Net profit margin (%)