Unlike HUL , ITC believes in owning assets - Large sized factories ( with huge land parcels ) , Branch / Head Offices , employee housing , hotels etc. All these assets are @ historic valuation and if we try to assess their market value it will be very high may be several thousands of crores …
In period 2003 - 2013) when HUL was going through tough times - it shored up profits by selling its marquee properties in South Mumbai and other places … So the real estate component in HUL has reduced …It helped HUL to improve its ROCE…
That is big difference between two companies … Now is it good or bad only time will tell …
Currently ITC believes it gives them better return than liquid funds and reduces variable cost esp office space rent , employee housing ( HRA reimbursement ) in long run …
Now should ITC get higher multiple than HUL …
The answer is No becos of Regulatory Risk of tobacco
What can change the story –
- Faster growth in other FMCG business - Foods , Personal care etc ,
- Strategic partner/ Listing of Hotel Business - 30000 crores
- Listing of ITC Infotech Business - 15000 - 25000 crores
- Listing of Paper boards / Speciality paper + Paper packaging- 15000- 20000 crores
- Listing Agri Business ( one of largest exporter of coffee, wheat , tobacco , soyabean , rice ) etc + Diary , wheat , maida processor - Rs 30000 - 50000 crores or more …
- Listing Retail Wills Lifestyle stores -
That will leave ITC with
- Cig business - 14000/ 15000 crore profits valued at 18 PE - Rs 270000 crores
- Market leading & profitable Atta & spices & ready to eat Business - 10000 crores ( 2X Brand sales Turnover )
- Strong player in Biscuit / Snacks/ Noodles + profitable business - 20000 crores ( 3 X Brand sales turnover )
- Children centric business - Class mate etc - 3000 crores ( 3 X Turnover )
- Puja / Religious ceremonies related business - 1000 crores ( 2X Turnover )
- Strong player personal care - Engage deos - 500 crores
Finally loss making personal care brands like Vivel , Juices , Ghee , Fiama , Chocolates , Coffee and may other @ Zero crores …
If you account for all you will see ITC is @ fair valuation with current structure and valuation may increase by 25% to 30% with listing of some of non core business