ITC Fundamental Analysis: Building a Solid Strategy

At last, the moment has arrived to delve into the fascinating world of ITC and conduct a comprehensive ITC fundamental analysis. As one of my favorite stocks, I have eagerly awaited this opportunity since day one, and now, with ITC being the hottest stock of the present day, there couldn’t be a better time to evaluate its potential. From soaring to an all-time ever high at 499.60 Rs. per share on July 24, to the intriguing demerger news which caused a sudden decline in the share price, and an ecstatic boost in revenue, ITC has taken center stage on the investment round table. So, why not engage in a thoughtful discussion about this remarkable company? Let’s embark on a captivating journey, tracing ITC’s rise to glory while carefully examining its past struggles and challenges.

“What Is Making ITC a Buzzing Stock in the Market?”

Highlights:

1. ITC shares gained over 2 per cent to hit a new 52-week high of Rs 499.60 on Monday July 24. 

2. ITC going to announce the demerger of its Hotel business soon.

3. Shares of ITC fell 2.75 per cent in early trade down to Rs 457.95 on Tuesday, July 25.

“What Is the ITC Hotel Demerger News That Has Caused a Sudden Dive in Share Prices?”

“Let’s have a quick look at the clippings that we got from the Business column of ‘The Economic Times’.” published on Jul 25, 2023.

In a classic example of how the theory of ‘buy the rumour, sell the news’ works in stock markets, shares of retail favourite ITC went up in anticipation of hotels business demerger but when the company announced the spin-off, traders started dumping the stock. After rallying over 40% in the last 6 months, ITC shares ended about 4% lower at Rs 470.90 on BSE after the FMCG major announced that it will hive off the hotels business into a new subsidiary.

As part of the demerger plan, ITC will own a 40% stake in the subsidiary which will be called ITC Hotels. The remaining 60% will be owned by the company’s shareholders on a proportionate basis. Since shareholders are not getting one share against each share they are holding, they are disappointed, Apurva said. While more details about the demerger will be announced after the board meeting of the company on August 14, there is also a case for ITC to levy a brand royalty to the hotel business.

Source: The Economic Times

ITC Fundamental Analysis- About The company| SWOT Analysis

ITC is one of India`s foremost private sector companies with a market capitalisation of ₹ 5,75,946 Cr. and a turnover of Rs 75,826.58 crore and is the largest cigarette manufacturer and seller in the country. It operates in five business segments at present — FMCG Cigarettes, FMCG Others, Hotels, Paperboards, Paper and Packaging, and Agri Business. The company was founded on August 24, 1910 and is headquartered in Kolkata, India.

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ITC Fundamental Analysis- Essentials & Financials

Over the past 12 months, the company achieved an impressive operating revenue of Rs. 70,936.85 Cr. But what’s truly outstanding is its annual revenue growth, which reached a remarkable 17%.

Company’s Financial Health: With a ROA of 23.89%, ROE of 29.1%, and ROCE of 39.2%, ITC seems to be on the right track for future success. These higher values are always desirable and indicate the potential for solid performance in the coming days.

P/E Ratio: ITC has a PE ratio of 30.01 which is high and comparatively overvalued but is lower than its sector PE ratio of 40.1. This suggests that due to the company’s strong growth potential and financial stability, investors are ready to pay more for ITC’s earnings.

Earnings per Share: The EPS of ITC is positive and growing as TTM EPS stands at Rs 15.40 per share which is +24.51% YoY. This means the company is consistently making progress and generating more value for its shareholders.

Dividend: The current year dividend is Rs 15.50 per share, and the yield sits at a respectable 3.36%. Moreover, ITC pays out 98.0% of its earnings as dividends, showing its commitment to sharing profits with investors.

Debt-to-Equity: ITC has a D/E ratio of 0.00 which means that the company has low proportion of debt in its capital. This careful debt management approach is encouraging since it improves the company’s financial stability and reduces possible financial risks.

Shareholding Pattern: In the latest quarter of Jun 2023, the promoters have no holdings in the company, while FII/FPI (Foreign Institutional Investors/Foreign Portfolio Investors) have slightly increased their holdings from 43.35% to 43.62%. On the other hand, Mutual Funds have decreased their holdings from 9.47% to 9.17%. However, overall Institutional Investors have slightly increased their holdings from 85.47% to 85.58%.

Evaluating Financial Statements

Profit & Loss | Income Statements

Revenue: In the ITC Fundamental analysis, evaluating the company’s Income statements over the past 10 years (from March 2013 to March 2023) is crucial. We observe a consistent rise in revenue from sales, although at a slower pace until March 2022. However, March 2022 witnessed a significant jump from Rs 49,257 crores to Rs 60,645 crores, and another rise to Rs 70,919 crores in March 2023. The revenue rose by approximately 23.10% from March 2021 to March 2022 and around 16.92% from March 2022 to March 2023. The consistency in revenue growth, even if gradual, is a positive sign for the company.

Net Profit: The company’s net profit has shown remarkable growth from March 2013 to March 2023, surging from 7,704 crores to 19,477 crores. This represents an impressive increase of approximately 152.99% over the ten-year period.

Earnings per Share: for EPS, it is always believed to be positive and rising in order to learn about the good health of the company. In this case, EPS has shown a consistent rise from March 2013 when it was mere RS 6.42 per share to Rs 15.44 per share in March 2023. Although the growth rate has been gradual, ITC is known for its value-focused approach and long-term consistency. This positive and upward trend in EPS is a positive sign for the company’s performance and aligns with its reputation as a reliable player in the market.

Dividend payout: Company has been maintaining a healthy dividend payout of 98.0%.

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Cash Flows Statements

Cash flows from operating activities: Cash flows from operating activities refer to the cash generated or used by a company’s core business operations, reflecting the inflows and outflows of cash resulting from its day-to-day business activities. In this case, Cash flows from operating activities is rising consistently over a period of 10 years, that is from 7,102 crores in March 2013 to 18,878 crores in March 2023. This data point offers information on the business’s capacity to earn cash from its core operations and serves as an essential indicator of both its financial health and its operational efficiency.

Net Cash Flow: A company’s capacity to meet its financial commitments, invest in expansion, or return value to shareholders is indicated by a positive net cash flow, which shows that it has made more money than it has spent. ITC’s net cash is fluctuating and has seen negative figures in the past 5 years which a reason to worry as a negative net cash flow indicates that the business has spent more money than it has brought in, which may indicate financial difficulties and liquidity problems.

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Limitations of ITC

In the ITC fundamental analysis, following are the limitations of the stock:

Last quarter witnessed a decrease in MFs’ shareholding in the company.

The stock is currently trading at 8.31 times its book value, indicating its market valuation relative to its net asset value.

However, disappointing sales growth of 10.3% over the past five years suggests that the company’s revenue expansion has been sluggish.

Important Highlights Of Company’s Past Year Performances

Over the last five years, ITC has truly impressed with profit growth, boasting a CAGR of 12.0%. Even in the trailing twelve months (TTM), the company has achieved an outstanding profit growth of 26%, showcasing its strong performance in recent times.

Over the last 3 years, the ITC share price is up 32%. And over the last one year, ITC share price is up 56.3%.

The company’s Return on Equity for the past three years stands at a solid 25%, indicating a healthy utilization of shareholders’ funds. In the most recent year, the ROE has further improved to 29%.

ITC has also demonstrated notable sales growth. Over the past three years, the company has achieved a Compounded Sales Growth rate of 13%, which has increased to 17% in the TTM period. This signifies robust revenue expansion for the organization.

It’s not at all unexpected that ITC remains a popular option for investors seeking long-term value and growth given its solid track record and bright future.

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Highlights of Earning And Revenue For ITC Ltd- Annual/Quarterly

In the past year, ITC’s annual revenue witnessed an impressive growth of 16.7%, reaching Rs 72,917.3 Crores. Moreover, the company’s annual net profit showed remarkable growth as well, rising by 25.9% to reach Rs 19,191.7 Crores.

During the same period, ITC’s stock price experienced a significant surge of 56.5%, outperforming its sector by an impressive margin of 5.9%.

Looking at the quarterly figures, ITC continued its positive trajectory. Quarterly revenue saw a YoY growth of 6.5% and reached Rs 18,244.5 Crores, while quarterly net profit surged by 23.4% YoY, amounting to Rs 5,175.5 Crores.

In the last quarter, ITC reported earnings of 4.09 INR, surpassing the estimated figure of 3.92 INR, resulting in a 4.29% surprise. However, the company’s revenue for the same period amounted to 163.98B INR, slightly below the estimated figure of 166.67B INR.

Looking ahead, Analysts anticipate a strong performance from ITC in the upcoming quarter. The estimated earnings for the next quarter are 3.93 INR, and revenue is expected to reach 175.88B INR.

BOTTOM LINE

Summing up, ITC fundamental analysis. We now can summarise that ITC has a robust records of fundamentals and financials. Apart from few shortcoming, the stock is a great one.

That’s all for today’s post. Hope you get some valuable insights from here.

Happy reading!

Disclaimer

The blog is meant for informational purposes and serves the general analysis of the stocks. Contents provided here are based on careful research and analysis utilizing the fundamental and technical indicators over a period of time. The post does not consist any direct recommendation about Investing or trading in the securities market. Thorough research and careful consideration are necessary for individuals to fulfill their personal responsibility in making financial decisions. Seeking professional advice before making any financial decisions is always advisable.