The problem with ITC has been that despite being in FMCG segment for a decade, their products are more a push product (driven by sales commissions and advertisements) than a pull product, which can be surmised from the segmental margins across the decade which hasn’t even crossed 2-3%.
At 2% you are a trading entity at best.
The company still keeps on announcing grand plans to enter dairy one day, chocolates other day, hospitals third day.
Truth is Tobacco is the mainstay of profits.
And for all practical purposes ITC is a tobacco co
Even that would have been okay, because ITC tobacco division does almost 14000 odd crores of PAT and should be enough to justify a valuation of at least current market cap with all other businesses being free
Problem however has been the ESG Commitment of various funds.
Globally ESG Investing has gained ground, and ITC with virtually 90% of profits from Tobacco segment is a no go for these ESG Funds.
26% of Total Assets Globally are managed under ESG.
Over 2000 funds are signatories of UN based Principles of Responsible Investing, that attempts to integrate ESG investing . The funds have total AUm of close to 100 trillion dollars.
For stocks like ITC to move, Global Flows are a must and 100 trillion dollars worth of money can’t invest in ITC.
Question now is how will that change.
Would valuations get too ridiculously low for people to again take a bet.
A buy back by management could announce cheapness
A few hit products which lead to growth in FMCG segment can tilt the favour.
I’m also evaluation regularly.
Disclosure : No investment