ITC: "Will"(s) "Gold Flake" assist "Ashirwad" to win "Bingo!"?

Most of issue about misallocation of capital are already convered on thread. While author is correct about past misallocation, what market would be concerned is not about past mis allocation but future misallocation of capital. When Dividend payout ratio since FY2020 is more than 90%, the management is now left with 10% of net profit at their disposal. Please note that during FY11-FY19 period, dividend payout ratio was 59-60%, so almost 40% of annual profit available to management to be utilised.

In Para, there is comparsion of ITC with Indiabulls/ GE/Enron. Seriously, the company which has consistently paid dividend with growth for last 50 years, increasing from Rs 140 during FY1971 as dividend to Rs 2.38 Lakh (for same invested amout) in FY2019 considered with companies which hardly had any free cashflow !!! Also, there is conflict in the discussion, on one side their complaint that management is not utlising free cashflow properply and misallocating capital and other side, same business is considerd with non-cashflow generating businesses. In language of JagatGuru Shankracharya, “Brahm Satya, Jagat Mytha”, if need to be adapted in stock market, I would adventure to say, “Dividend Satya, Price Mytha” Comparison with GE need to seen in context of free cashflow generation by GE group. With GE Capital being a growth engine, there was virtually no free cashflow in GE book during Jack Welch. Further, the accounting polciies of GE was also world class in manipulation with assumption. Luckily in case of ITC, it also had a finance subsidiary by name ITC Class finance, which got closed in late 1990s/early 2000 lossing small amount in today’s context.

On point of ITC Giving 10 hours of investor presentation, author does missed to mention that ITC AGM also last 2-3 hours where at least 60-70 members do ask management question. While I completely agree with view that there is scope for improvement in corporate governance, but we also need to consider the price.

Further, one more point to consider is profitability of Other FMCG business over the years. It is true, that Pivot brands of ITC like Ashirward is lower margin as compared with other established players, The operating leverage is also appearing playing out in ITC Other FMCG business, with current EBITDA margin touching 10% in Q3FY23 as against loss making in FY2013. So it is not only hope in my view.

I belive most of investors know that profitability of Cigarette is much higher and same being utilised to develop businesses like Other FMCG which would be superior due to health related issue of Cigarette.

Also, I find it simpler to look at capital employed change and get change in allocation of capital then to look only at assets without liablities. Find enclosed segmentwise capital employed details:

Further, above change in capital employed also after 60% Dividend payout. I could not understand not look at only Capital employed and only assets (without considering liabilties which also fund assets) and calculating the figure. The better prespective woule to calculate Capital employed change. Further, one also need to look into Capital employed since FY2019 to FY2022, maximum growth in Other FMCG business with Rs 3,000 Cr being additional capital employed while no major change in other business.

While concerns are valid and known, one also need to take in account price, dividend and management efforts in last 3 years to increase dividend payout. this is my view and it may be completely wrong.

Disclosure: Among top 2 Holding, MY view may be positively biased. Not a SEBI registered advisor, Not suggesting any investment action. I may change my investment position without informing VP forum. I have great track record of being wrong in past


There are no absolutes in the stock market. I have learnt this lesson multiple times in multiple ways :slight_smile:

So painting ITC as an absolute disaster is wrong. At some price, it becomes a great stock, at some price it becomes a bad investment. I think the dividend angle mentioned above is real. I bought a huge chunk of ITC around 200 and have part exited around 380 levels and will continue to hold the rest forever as it’s a great investment at this price point.

As a part-time investor, my mantra for investing has always been “bad times make a good investment”, it is better to buy headline companies like ITC (or other nifty stocks) when they are hopelessly down rather than try to break your head over analyzing a vast conglomerate and ascribe a ‘correct’ price to it.

Disc: long since lower levels, significant part of my portfolio.


Beauty lies in the eye of beholder…

Most stocks have fans and haters . ITC is fortunate to have both in large nos … That helps balanced investor to steady their views …

ITC is great stock to own at < 16 PE level as it has some very solid time tested cash generating business which will keep dividend flowing …Also unlike its peers it owns many of manufacturing / logistic and employee housing assets … that will make it more inflation proof versus peers

But then ITC also has lot of business which have

  1. Regulatory risk like tobacco ( tax / business risk) , agri business ( stock limits and export ban etc can overnight impact revenues )
  2. Cyclical business like Paper and Hotels

So when PE is high , these Risk can hurt a lot if they manifest …


Agree with your points, just curious was PE high for ITC before? I mean its current PE is around 26. Was it higher than 30 ever before? What has been its low and high range over very long term? Thanks

Regarding ITC, what I have observed that market has been very very efficient in valuing this company based on macros as well as performance of its each business unit.

For Cigarettes division, the scope for tax increase always remain as India is still below recommended WHO limit of 75% tax. India is somewhere near 57%, if I am not wrong.

For FMCG, even Adani is low margin FMCG company and is in existence since many years - since Jan 1999. Tatas also used to be low margin and still lower than top notch FMCG players. Tata Consumer has been constantly increasing margins. This gap is an interesting gap to be filled. Same opportunity lies in ITC imo. Efforts seem to be in right direction. Inflation eats margin and their investments proved that inflation did not reduce the already lower margins even further. This is a positive and increases my conviction on long term performance of this division.

Hotels - Again Tatas are hugely positive on their Hotels business. I was listening to someone from Royal Orchid management (ex IIM A) and he was hugely positive for hotels for next 2-3 years. ITC not being in rush to sell/demerge it in bottom of 2020 inspite of tremendous pressure from investor community etc. again increases my conviction on this division.

Agri - I dont know much about this piece. Someone explained echoupal beutifully in this thread earlier and I think they are good at this division.

IT - Again a piece not know much details or progress on. Can be a dark horse piece going forward.

Even L&T has no owners. They gave a new life to their group via technology. LTIMindtree today is among top 5 tech firm in India. LTTS is niche tech.

Not sure about future of ITC and its each division but have seen only but positive developments since last 2-3 years I have been tracking and owning its shares.

Would be great to know the magnitude of Tax risks & Agri policy risks going ahead as I think that is a real threat to valuations than anything else at the moment.

Disc: Invested & highly biased. Tata Consumer & ITC are my top 2 holdings. Holding both from much lower levels. Not a buy/Sell recommendation and not eligible for any advice. I can be completely wrong in all my assessments.


Sharing some past valuations compiled from different sources. Valuations on PE have varied between 12x to 85x (achieved during 1992 bull market). Since 2000, it has been topping out around 35-40x PE. Just for context, current multiples are below median PE of last 15 years.

Disclosure: Invested (position size here, sold shares in last-30 days)


Market has been efficient 80% of time - valuing ITC with near term visibility ( this is true for most large Cap stocks ) … 20% of time market might overvalue or undervalue ITC … That is what present opportunities .

ITC is semi mutual fund which widely represent rural , urban consumption sectors . It is a good stock to own inspite of Cig hangover …


For any stock, sometimes opportunities arise from valuation perspective as you mentioned and sometimes inspite of being rightly valued…and that’s because of impending positive changes in business fundamentals because market is not sure about those postive changes, and rightly so…because nothing is sure in business and that is the leap of faith one has to sometime take as an investor, depending on conviction level, inspite of accurate valuations… (For example when ITC was trading at around 150 couple of years back with most of its divisions facing stiff challenges)

On lighter note, if it’s just the valuations then probably statisticians/mathematicians would have been top investors…no doubt valuations based entry and exit can help generate good CAGR/profits every year to show, be content with or for income generation for those dependent on investment based income…but real wealth maybe generated by such leap of faith taken at right opportunity and right allocation…I am yet to take one such myself :slightly_smiling_face:

Disc. Invested and biased. Not a buy/sell recommendation. Not eligible for any advice. Views only for academic purposes and I can be completely wrong in all my assessments


Here’s an update to my earlier SOTP valuation of ITC.

A few important points to note:

  1. I expect that the biggest point of difference that most people would have with the valuation would be regarding the multiple chosen for the FMCG business. I believe the number I’ve used is fair for the reasons mentioned above. But if somebody were to ascribe 6x instead of 5x to it, I wouldn’t crib. Considering this, you may consider the fair price as per this SOTP to vary in the range of 340-360.

  2. This is a purely theoretical exercise done by me to satisfy my intellectual curiosity. Neither is this a recommendation to buy/sell and nor does this determine exactly my buy or sell thesis. I may choose to sell basis long term median valuation numbers or technical indicators and yet find doing this exercise useful, as it helps me get a sense of the ground beneath the lofty heights that markets can sometimes take stocks to.

Special thanks to @harsh.beria93 for giving his feedback and helping me fine tune the numbers. Would appreciate any feedback/views from fellow members.

Disc: Invested and biased.


Hey @nirvana_laha , can you help me in understanding the numbers in “Fair Valuation Multiple”.

To what basis, where these number finalised ?

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The logic for using the fair valuation multiples is given in the immediately next column. For example, the tobacco business is benchmarked to the valuation multiples of large tobacco companies of the world such as British American Tobacco and Phillip Morris. Similarly, the FMCG business has been compared with other listed Indian FMCG businesses and I have found it appropriate, at this stage, to be benchmarked against Tata Consumer’s valuation multiples.


I had a question here, should we compare the Tobacco business of ITC with that of the peers listed in the other developed nations and assign the same valuation multiple.

I feel Tobacco consumption per capita in the developed nations is maxed out. Plus there is probably no issues of fake or the illegal cigarette industry in the US or other developed nations.

I feel India still has a lot of growth left in terms of ciggerate consumption and hopefully with time the illegal cigarette industry will come down.

So shouldn’t a little higher multiple be assigned during a valuation exercise.


Indian tobacco companies have always traded at premium to global peers,atleast 30-40% expect the premium to sustain.

The data point is accurate and interesting to note.

Global peers are moving to a reduced risk products strategy (HnB, Nicotine Pouch) - and their economics might even be better than traditional cigarettes (depends on excise tax regulations to a certain extent)

Meanwhile, thanks to the wisdom of govt policy - ITC or any Indian tobacco company doesn’t have a strategy beyond cigarettes.

May I suggest all shareholders to go through investor presentations for Philip Morris (undoubtedly the leader), British American Tobacco ( where the non combustible business will turn a profit soon) and Altria (utter disaster- see Juul and now buying Njoy and lacks a strong alternatives business but has the stronger profit pool - US Combustibles)

Now to the multiple question. Of course difficult to compare LFL multiples of cigarette businesses.

But does that 30-40% premium sustain if ITC is continually at the mercy of the government for volume growth (no excessive taxation - what is last 10Y volume growth???) and doesn’t have a reduced harm strategy towards which the world is moving. Beedi is a massive employer and will continue to be prevalent.

Now while the stock has worked out - let’s not forget that this management still have no skin in the game and you still have the massive cash pile on the books. GOI stake sale seems to be a boogeyman I’m not much concerned about.

For the stock - valuation re-rating has worked out. Now time for cashflow growth to do the heavy lifting.

Fwiw, I’ve made more money on ITC than on Philip Morris, BAT and Altria combined.

PS - my thoughts from about 2 years ago


ITC is building a Nicotine producing plant near Mysore using its own Subsidiary ITC Indivision. This factory will produce pure nicotine that may go in to the vaping products of BAT, Altria or PM. If govt. allows vaping, I don’t see any danger as ITC is anyway ready with such. My views shared here on cigarettes shared here.

Also KT & G a fast growing company in HnB segment.

In india cigarette sales growth happens not because we will have more smokers but the move from illegal cigarettes to legal once ( as taxes where super high that lead to lots of smuggling ). Illegal cigarettes still command a large market size.

Any data to support such arguments ? FMCG EBITDA margin reached 10 % last quarter and revenue growth in FMCG is strong. In fact I am glad that management stuck to its long term vision ( Building ICML’s across the country ) and did not deviate from the path just because market did not value them or people repeatedly told them that their capital allocation is not correct.

Opposite views ( with data) is very welcome.

Discl: Allocation is same as my last post. No buy/sell transactions last 30 days.



His compensation last year - INR 10.7cr
His total investment in ITC - INR 11cr (at current valuation after doubling) - I think pretty much entirely through options over the years (by diluting shareholders) which I guarantee you he will keep selling.

He has been at ITC since 1986! - 37 years. (probably higher than the average age of a valuepickr participant)

Screener has insider trades since 2018 September - I have found 3 buys (amongst 100s of sells) by some employees/relatives buying insignificant qty of shares (two are of 100 shares by some relative and another is 2000 shares)

The purchaser of 2000 shares is this guy who runs a small part of the FMCG business

S Puri has only sold.

ITC effectively has no controlling shareholder, no parent, no promotor - no maa/baap.
There is no accountability - and the management doesn’t have enough skin in the game. They do not disclose how the bonus/performance element of compensation is determined.

Despite all the media/valuepickr/retail investor ferment about demerger - I will be very surprised if that happens - because the management has no incentive to do so - read empire building. They cannot justify paying high salaries otherwise.

“Yes we have discussed at board level blah blah blah blah”

Not that hotel demerger is going to create any significant value. Instead:

  • Demerge FMCG and Agri into one entity - aggressively grow, acquire, gain scale, increase availability then focus on margins.

  • Demerge Tobacco - maintain share, drive op lev, build RRP business (import tech from BAT and lobby govt to create policy), return 95% of cashflow to shareholders annually and lever up to 1-2x EBITDA and refinance with a big dividend or buyout a big shareholder (SUUTI maybe or buyout BAT’s stake in all non-tobacco assets)

  • Demerge Paper - stabilise margins and grow.

  • Maybe sell ITC Infotech - I don’t even know what this business does and I don’t think most shareholders do either (maybe ask on the concall ??? - doesn’t happen of course) and if you ask management they’ll do some word vomit about IT services etc.
    Wouldn’t be surprised if the business is mostly internal to other ITC businesses.

  • Maybe demerge hotels - create a pure-play luxury ITC hotel management company - sell more assets to a Brookfield/KKR fund (retain only flagship properties) and get into 10-20 year mgmt contracts.
    A fairly asset-light business with long-term contracts (SaaS much?) and ownership of some flagship properties (already paid for) allow mgmt to effectively experiment and increase value prop (R&D) - these businesses are worth a lot folks.

That said all of that is wishful thinking because it won’t happen.

For one minute assume that my plan is a good one and it happens - tell me about the future of S Puri and where he sits and how he takes home 11cr a year (and growing)

Now if ITC is a large majority of S Puri’s net worth - suddenly he starts behaving like a responsible fiduciary rather than a hired hand.

I know my thread(s) may feel like a rant - but come on folks. We are here to discuss and be critical - not to defend the management. It is the management’s job to serve investors.

Sure price drives narrative (bhav bhagwan che) and re-rating has driven the performance. But tell me what has management done to drive re-rating?

Business performance was down, which has reverted to mean. The least the management could do is to run the businesses well.
Govt didn’t raise taxes (as much) - that helped sentiment and will help volumes.
And from a fairly poor sentiment (meme stock) to now - that’s basically sentiment mean reversion.
The one thing management has done is to stop hoarding cash (any more - there’s still a massive pile btw) and have a high payout policy and say they’re going to an asset-right strategy for hotels. (whatever that means and not that hotel is a value driver for this business - but surely investors pay attention to it so it is a sentiment driver)

And FWIW - I’ve had a 2x in ITC - but I don’t think I give credit to the management for that like they’ve been some wonderful stewards of capital.

Why do companies like Alkyl Amines, Dmart, Berger Paints, TCS do con calls where the CEO shows up - promoters own > 70% of the company. Unless the promotor wants to do something - minority shareholders in theory have no say. Because they are good fiduciaries of minority shareholders’ capital.


Yep, I’ve seen this. Do we know anymore from the management or media reports about this? I think they sell to pharma actually.

ITC to manufacture, export nicotine and nicotine salts - The Hindu BusinessLine

And on vaping products, we need to have an RRP strategy - simply because that’s better for public health in the long term - moving people from cigarettes to reduced-risk products.
There are improperly produced counterfeit products - and that’s exactly why you need regulation - the younger population is attracted to vape.

Vaping/RRP is not as simple as just government will legalise them and the next day ITC’s product will be in the market. This requires years of development, and health authority approval (read PMTA from FDA) and you need to prove that they reduce health damage to actually market them as such.

Unarguably, the most accepted RRP products are owned by Philip Morris Intl - iQOS (developed by PMI) and Zyn (through the acquisition of Swedish Match). And PMI owns 25% or so of Godfrey Philips and are co-promoters. They have these FDA-approved products. ITC has no monopoly or natural right to win in this business. Sure BAT has a solid vaping product that they could introduce through ITC and they should.

To explain how difficult is it to get a PMTA FDA-approved Reduced Risk Product and to market it as such - Altria is (reportedly) buying a small startup (with like 3% market share of vaping in the US) for something like 18x sales (like USD 2.5-3bn). Because the said startup, NJOY, has one of those PMTA/FDA approvals.

I also don’t understand why companies in India do not disclose volumes.
All global majors share volume details for all the regions they operate in.

Look at the volume growth pre covid - so poor.

Any sustainable volume growth will come from a stable taxation regime.
Here’s an excerpt from an interesting article from 2015 (when the tax increases were fairly high - punishing volume growth)

Rather, said Syed Mahmood Ahmad, director at TII, sales of counterfeit brands and smuggled and counterfeit cigarettes had gone up as they are easily available at a cheaper rate.

“The escalating excise duty burden on legal cigarettes has almost doubled in the last four years, as a consequence of successive increases in Union budgets since 2012-13," he said.

Over the last three decades, legally manufactured cigarettes’ share of total tobacco consumption in India has declined from 21% in 1981-82 to 12%, according to the TII. During the same period, overall tobacco consumption increased by 42%.

ITC, in a statement after declaring earnings on Friday, said that high taxation had led to a significant shift in tobacco consumption to lightly taxed or tobacco products such as bidis, khaini, chewing tobacco, gutkha, and smuggled and counterfeit cigarettes that evade tax. These products currently account for more than 88% of total tobacco consumption in India at present.

“Tobacco addicts are shifting to other low-cost options, which are more dangerous, and counterfeit brands," said Jha, adding that increased use of counterfeit products resulted in losses to the government and the industry.

Meanwhile more recently, from Axis Equity Research from Feb 2023.

Now what the government should do is: (which balances health objectives and revenue objectives and really benefits all stakeholders - except the bidi/gutka employees and owners)

  1. Keep duty/tax increases small (which seems to be happening)
  2. Have a thoughtful science-backed RRP policy (not some stupidity like how they did with the sale of alcohol on the highways)
  3. Try to reduce growth of bidi/gutka/etc (idk how)
  4. Reduce illicit import/counterfeit through other restrictions.

BTW, India is one of the most unaffordable places to be a cigarette smoker (so bidi rules ofcourse) - compare with countries of any substantial population.
So cigarettes are only smoked by the rich, so affordability is a lot better for that (very) small subset of the population.

To add to why investors should be pushing for an RRP strategy.

Look at PE multiples of RRP Advanced Companies (Philip Morris and (when listed) Swedish Match) and compare them to Altria, Imperial Brand, and BAT.

BAT is likely to re-rate as RRP starts to turn a profit and revenue contribution inches up.



  1. LTM Margin is 6.1%
  2. HUL is at 22%, Nestle is at 19%, PGHH at 18%, Colgate at 26%, and Gillette at 19%
  3. Marico at 17%, Britannia at 15%, Dabur at 17% and Godrej at 17%

But ITC is a new player and doesn’t have scale -

ITC is not a new player in FMCG and has been around for a very long time - Aashirwaad was launched in 2002.
ITC Others FMCG sales for LTM are 18000cr - larger than all of those companies other than Hindustan Unilever.

But ITC is investing for growth -

FY17-FY22 growth was 8.7% growth (but Covid…)
If I compare FY18 to FY23 (9M Ann.), growth is 10.7%
The median company in the comp set grew sales at 10% with an average EBITDA Margin of 22% and a ROCE of 50%.

I take EBITDA because i think OPM in screener refers to the EBITDA margin. ITC’s 5yr EBITDA margin is closer to sub 5%

But ITC doesn’t have MNC decades-old brands and parent’s R&D + A&P -

MNCs pay a royalty to the parent for that privilege (and that is already deducted in the margin above)
The Indian Cos don’t have those advantages and the margins are pretty high.

But you exclude Adani Wilmar -

AWL is primarily an edible oils business (I think edible oils generates all the profits and is inherently a low-margin business)
It is growing much faster with an aggressive strategy (like most other Adani cos) and diversifying rapidly.

To conclude,
No, I do not think FMCG is some wunderkind where management has batted a century.
Maybe the terminal scaled margins of ITC FMCG are lower than the others, but not 10%, I think the potential could very well be in the mid-teens.



Here is the details of other FMCG cos…

This is not new but the company has delivered stellar performance in the past despite that.

For the conglomerate of this size, salary seems to be in line.

They were pro active and convinced the govt. that astronomical increase in taxes only leads to illicit cigarettes gain volumes and govt. loose out revenue. Its not that govt. thought that we will not increase tax because they want ITC to re rate.

Hotels, Paper, FMCG, Infotech ( except recent slump ) is doing well and margin is expansing, I wonder if its expanding by itself or because of management measures.


wünderkid - certainly not today and it won’t have margins of HUL. The product mix is different. Atta is a low margin business that has largest contribution to FMCG - revenues. ITC has a large scale biscuits business as well as some items like engage. it would be fair to assume long term OPM ceiling may be between 15-20 %.

HUL didn’t attain 25 % margins even in the 1990s although they has business in India since 1933.