ITC - Indian Tobacco Company | Don't Repent Later | Actual Value 1000x High
About the company:
ITC is one of India`s foremost private sector companies with a market capitalization of USD 45 billion and a turnover of USD 7 billion. ITC ranks among India`s `10 Most Valuable (Company) Brands`, in a study conducted by Brand Finance and published by the Economic Times. ITC also ranks among Asia`s 50 best performing companies compiled by Business Week.
ITC has a diversified presence in FMCG, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, and Information Technology. While ITC is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery.
The company also in the business activities of Hotels, FMCG - Others, Agriculture Business, FMCG - Cigarettes, Paperboards, Paper and Packaging.
Let’s have a look on key points of the company:
1. Liquidity or Current Ratio
Liquidity or current ratio tells us about the cash position of the company.
As of 2020, current ratio for ITC is 4:1. It shows, companies liabilities are 1/4th than its number of assets.
Considering last 5 years data, number of current assets are in increasing position while current liabilities are decreasing.
In case of ITC, current ratio is just in an excellent position.
2. Solvency or Debt to Equity Ratio
Solvency or debt to equity ratio helps us in analysing the capital structure of the company.
As of 2020, debt to equity ratio for ITC is 1:30 or 0.03, which is very much less than considered ideal to be 0.50 as maximum.
This is also a great sign.
3. Profitability or Return on Capital Employed Ratio
This ratio is also called as ROCE ratio.
This ratio helps to measure the profitability or return on money invested.
In terms of this ratio, it is higher the better.
As of 2020, it is 29.26% for ITC.
It simply can be said, INR 100 invested to receive INR 129.26.
Again a positive sign.
4. Activity or Inventory Turnover Ratio
Activity or Inventory Turnover Ratio helps in measuring operational efficiency of the company.
In terms of this ratio too, it is higher the better.
As of 2020 it is 5.51x, decreased by 0.58x from previous year and is 5.37x on an average for last 5 years.
Still it can be consider a positive sign in terms of average ratio.
5. Reserves to Share Capital OR 5 Years Trend in Reserves
Increased trend in reserves is always a good sign. Higher the ratio = Better chances of getting bonus shares / dividend.
As of 2020, Reserves and Surplus of ITC stood at 62,021 crores, increased by 6,104 crores from last year and an average increasing trend of 5,036 crores per year is seen in last 5 years.
This is again a superb point.
6. Free Cash Flow from Operating Activities
Free cash flow from operating activities helps in measuring free cash flow available with the company for operations of the business.
Cash flow from operating activities of ITC has increased by 2,106 crores and stood at 14,689 crores from last year. If considered cash flow from operating activities of last 5 years it shows an increasing trend.
A positive point in fundamentals of the company.
7. Shareholding Pattern – Pledged Shares
It helps in understanding the number of shares pledged by promoters of the company.
The promoters of ITC are different FIIs, DIIs and public while the journey is headed by Sanjiv Puri, Rajiv Tandon, Nakul Anand, Sumant Bhargavan and David Robert Simpson who are serving as key members of the management.
It’s good to know, ITC has 0 number of shares pledged by its promoters, which is definitely a good sign.
8. Valuation or Price to Earning Ratio
The ratio is used for valuing companies and to find out whether they are overvalued or undervalued comparing with its Industry P/E.
The industry or sector PE for ITC is 17.45 while that of company’s PE is 20.18.
This shows that the share price of ITC is overvalued.
Still, it could be considered as a good buy.
From the above discussed 8 points we get all 8 positives, 0 neutral and 0 negatives for the ITC. It can be considered as a good buy.
As a part of economy analysis, the demand for FMCG products is not going to decrease as we are not going to stop using essentials like Soaps, Biscuits, etc. and many youths have been addicted to products like Cigarettes which doesn’t seem the demand will be in negative in upcoming times. FMCG industry in India is expected to grow at the rate of 27.9% CAGR (Compounded Annual Growth Rate) to sum of USD 103.7 billion by 2020. Additionally, the rural FMCG market is projected to grow at a CAGR of 14.6% to reach USD 100 billion by 2020 and USD 220 billion by 2025.