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

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.


Sure, but what’s highlighted in the picture is PAT Margin.
ITC FMCG PAT margin is currently like 4.5% (I would argue standalone economic margins would be lower)

6% EBIT Margin currently - assume no interest expense and a 25% tax gives you a 4.5% PAT margin.
They don’t have interest expense because the parent is funding with tobacco cashflow - so economic margins are lower because the growth is not self-funded (not so far anyway)

From your graphic,

In the 1992-2001 period - they grew sales at 22.5%
2.5x PAT margins and increased ROE from 30% to 54%

Assuming 7% inflation, ITC’s 18k crore (FMCG Revenue) is where HUL was in 1992-1993. HUL then did a 7% PAT Margin, 50% ROCE and 35% ROE.

I think he’ll be okay given he’s definitely getting a big raise this year.

Sharing stock performance of all the stocks mentioned in the article for 5 and 10 years. Compensation should be commensurate with TSR.


Appreciate your inputs, but your points, even if executed one by one, will happen over many years, if indeed they happen. And the merits of the business have also been discussed in the thread, so it is not completely bad.

I don’t think anyone has bought ITC in the view of having a multibagger in their hands, personally it brings some kind of stability to the PF, I guess it could be the same for others too, in part due to its size, the dividend, and the longevity of the businesses as a whole, with the optionalities of demergers if and when they happen. Perhaps ITC is one stock which could be handed over to next generations. One stock, which need not be looked at regular intervals in fear or doubt, and perhaps even teaches patience.

And there obstacles that are detrimental to the verticals, that drive the price down from time to time, right from government raising taxes to a drought to change in habits.

While I do acknowledge and felt the underperformance of the stock for extended periods after I have invested, I also had the chance of experiencing the rise of the price beyond expectation, all of which could happen again, many more times even, if one were to hold it for many years, due to many reasons, as simple as fund houses selling it. Still I guess it is not that bad of an idea to have it in the PF in whatsoever proportion, personal opinion. It is possible that, in the future, one could feel the fallacy of holding it for years, choosing it over other stocks with relative strengths, which if were chosen would have rewarded more, could even happen to me.

But for now I guess it is tukra do ya pyar karo as a whole, or, like certain verticals, despise others.

Invested and I guess will remain so until a panic selling happens in the stock.


Absolutely. It is my second largest holding at 7.5%

It brings defensive characteristics to the portfolio and depressed expectations at starting point brought increased gains in times of economic uncertainty and turmoil. Furthermore, the business naturally mean reverted and we’ve made a very good gain in a fairly short period.

Globally, over the many decades, selling cigarettes has been such a good business and produced so much cashflow that management has always mis-allocated capital, but always been bailed out by the cigarette cash machines.

Philip Morris/Altria has owned what is modern day Kraft Heinz and even today holds a stake in Anheuser In Bev. I think shareholders would’ve been better off if all that money was returned.

ITC has actually done super well in diversifying, all things considered and in comparison to global Tobacco peers.

They did have a stint in a financial services business as well in the 90s which was a dud. Due to some business diversification, top brass at ITC was arrested for some FERA violations in 1996. The prodigious tobacco cashflow allows you to make up for A LOT of mistakes.

My base case is that it doesn’t happen at all.
And if it does, probably takes 2-3 years to wrap up.
It was my attempt to outline a scenario that unlocks the most value for shareholders.
All I can do is dream of optimal capital allocation and value creation.


I am not sure if having a view about what the management should do for a company the size of ITC is necessary, for retail investors. Not that I condone certain actions or inactions which are repeatedly being criticized and perhaps rightfully so, but I guess given the long run the company can still have, all the mistakes may fade away, and I guess the major concerns that are talked about now may have been talked about a year before, and the year before that, and may be a year later too.

I recommend you to go through the posts of @ashwinidamani in the thread about capital misallocation and other things, in you have not already. And I think I remember reading a post in the past by Dr. Hitesh, wherein he mentioned that he parks funds in ITC.

And given the verticals the company is in and the factors that influence those verticals, I think one year’s AR does not make me sell my shares and come out of the stock, one or the other vertical will still be performing, and there is FCF, so it is not a bad investment per se, unless it occupies a considerable position in the PF and one starts thinking about opportunity cost.

Lambi race ka ghoda, and an elephant too, so I guess if one tags along with it for years, the stock may even exceed our expectation and surprise too.


Appreciate your effrorts to highlight key negatives in ITC along with positive. Most of factors mentioned are valid, I have different view point about Non-Cigarette business of the company. In my view, over a period of time, ITC management has been able to achieve the right direction, although pace may not be what an average investors expecting.

Find enlcosed two graphs which were covered by analyst report in 2021-22 on ITC. The first image provide details of ITC FMCG business growth in sales and margin over the year . The second image provide marketing spent of ITC in a partcular segement vis other peers.

Image 1

Image 2

As per analyst calculation in image 1, ITC managed to increase EBITDA margin from -2% in FY12 to 8.9% in FY21 and ROCE from -10.1% in FY12 to 10.8% in FY21. This are actual performance, which does give confidence to about right direction of ITC management on FMCG business.

In second image, If one take example of a product Bingo, it suggest that over a period of time, aggressive marketing expenditure for building brand, get stabilise once Sales reaches to critical mass, as reflected by media spent as per cent of Sales declining from estimate 10.4% in FY14 to 6.6% in FY19, almost 400 bps increase just from market spent saving. This information is not available in public domain and may not be accurate. However, at least it does provide direction margin of ITC FMCG business over long term.

Disclosure: ITC among top 2 holding in my equity portfolio. My view may be biased due to my holding. Not suggesting any investment action. Not a SEBI registered advisor


Some interesting use cases of ITCMAARS platform


Interesting Use Cases Indeed Harsh.

These deals will surely benefits all three parties: ITC, farmers and sellers

I wonder what kind of financial benefits ITC may get?

Will it be fixed compensation for using its platform or will it be commission based?

These are high on optics and low on revenue initiatives

ITC had large no of partners - Banking , Insurance , Automobile , Agri Inputs , Retail products ( apparel , durables , furniture , FMCG etc ) over last 15 odd years .

The idea here is to increase access of products for farmers and not to earn revenue for ITC … The cost to service for this is equal to commission generated .


What exactly would Optics mean here? Is it like visibility or goodwill or something else?

Just curious on how indirectly would it benefit ITC if farmers have access to SUVs, white goods or any other product which is not related to ITC etc? Banking maybe beneficial if they use the finances to invest in farming and do more business with ITC …


I have worked on couple of such partnership for a bank myself. The typical challenge is that these programs take quite a long time to have any meaningful impact. Initially the program benefits people who would have anyway been covered under notmal route … it takes significant effort on all parties make these initiative a success


High OPTICS = High ( GOOD WILL + Media/community attention ) => network energisation

ITC gets goodwill like a partner who helps its stakeholders …

It is like any company whose HR negotiates for better mobile data package or car deal for employees for personal use … While there are no or minimal direct benefits . It brings in lot of goodwill among stakeholders