ITC becomes seventh Indian firm to cross Rs 6 lakh crore m-cap

The company's strong operational performance, characterised by double-digit growth in cigarette volume and a robust recovery from its hotels business has added to its attractiveness from a fundamental perspective. These positive aspects make ITC a compelling choice for investors seeking reliable and steady returns, especially during uncertain economic conditions.

Over the past five years, the taxation (GST & Excise) on cigarettes has remained relatively stable. Additionally, the implementation of deterrent measures against illicit and contraband cigarettes has contributed to significant volume growth of approximately 19 percent in FY23, analysts said.

Investors have long been concerned about the hotel business's high capital expenditure and subpar return profile in the case of ITC. Recently, the Chairman of ITC said that the company is exploring alternative structures for the hotel business. Although the final outcome is yet to be determined, the company has been pursuing an 'asset-right' strategy for ITC Hotels, which is the second-largest listed chain.

The 'asset-right' strategy focuses on optimising the utilisation of capital by owning fewer assets directly and instead emphasising management contracts or other partnership models to expand the hotel business. By adopting this approach, ITC aims to improve its return on investment and mitigate the risks associated with heavy capital investments in the hotel sector, analysts said.

"In our base case, we forecast c.10 percent annual growth in Cigarette EBIT over FY23-25E and a c.12 percent growth in FMCG revenues. Cigarette margins are expected to expand by 120bps over FY23-25E as an increase in consumer prices should more than offset tax hikes. We use SOTP methodology to value the ITC cigarette business at 27x Mar-25 earnings, new FMCG at 5x Mar-25 sales, Agri and paperboard businesses at 15x Mar-25 EPS, and hotels at 18x Mar-25 EV/ Ebitda", said Jefferies India in a note to investors.