Economic-Industry-Company
Analysis
Submitted By:. Submitted to:
Kirti Sabran. Dr. Harmeet Kaur
Amity University Jharkhand. Asst. Professor
Enrolment No : A35101919003. AUJ
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Content Page No.
1. Introduction 3
2. EIC Analysis 4
3. Economic Analysis 5
4. Industry Analysis 6
5. Financial Summary of Last 5 years 7-9
6. Co. Analysis 10-12
7. References. 13
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Introduction
The following report is an economic, Industry, Company analysis (EIC Analysis) of ITC Ltd.
Company Profile
ITC is an Indian cigarette company which is headquartered in Kolkata. Its five diversified businesses
are Fast-Moving Consumer Goods (comprising Foods, Personal Care, Cigarettes and Cigars, Apparel,
Education and Stationery Products, Incense Sticks and Safety Matches), Hotels, Paperboards & Specialty
Papers, Packaging, Agri-Business and Information Technology.
Established in 1910 as the 'Imperial Tobacco Company of India Limited', the company was renamed as
the 'India Tobacco Company Limited' in 1970 and later to 'I.T.C. Limited' in 1974.
Revenue Segments: Out of all the businesses ITC owns, some of the major contributors to the top line
of the company are, Cigarettes (40%), FMCG-Non Cigarettes (21%), Agri business (19%), Stationery,
paperboard and packaging (11.5%) Others (8.5%).
Useful Information
1925: Packaging and Printing: Backward Integration.
1975: Entry into the Hospitality Sector - A 'Welcome' Move.
1979: Paperboards & Specialty Papers - Development of a Backward Area.
1985: Nepal Subsidiary - First Steps beyond National Borders.
1990: Paperboards & Specialty Papers - Consolidation and Expansion.
1990: Agri Business - Strengthening Farmer Linkages.
2002: Education & Stationery Products - Offering the Greenest products.
2000: Lifestyle Retailing - Premium Offerings.
2000: Information Technology - Business Friendly Solutions.
2001: Branded Packaged Foods - Delighting Millions of Households.
2002: Agarbatti & Safety Matches - Supporting the Small and Cottage Sector.
2005: Personal Care Products - Expert Solutions for Discerning Consumers.
2010: Expanding the Tobacco Portfolio.
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EIC Analysis:
There are three parts to EIC Analysis.
1) Economic Analysis
2) Industry Analysis
3) Company Analysis
Economic analysis addresses the effects of macroeconomic factors such as GDP, inflation,
unemployment rate, interest rates on the stock prices and output of the company.
Industry analysis takes into account of the trends and movements in the industry of a specific company
and relates it with the financial and non-financial performance of that company.
Company analysis is a study of the company’s business interests, historical data, market share,
revenues, profitability and other company specific factors.
Economy Analysis
India has emerged as the fastest growing major economy in the world and is expected to be one of the
top three economic powers of the world over the next 10-15 years, backed by its strong democracy and
partnerships.
Market size
India’s GDP is estimated to have increased 7.2 per cent in 2017-18 and 7 per cent in 2018-19. India has
retained its position as the third largest start-up base in the world with over 4,750 technology start-
ups.India’s labour force is expected to touch 160-170 million by 2020, based on rate of population
growth, increased labour force participation, and higher education enrolment, among other factors,
according to a study by ASSOCHAM and Thought Arbitrage Research Institute. India’s foreign exchange
reserves were US$ 405.64 billion in the week up to March 15, 2019, according to data from the RBI.
But India’s economy had been slowing down for over seven quarters even before the pandemic
Investments and exports were contracting and it was government spending that boosted growth to
compensate for the declining private sector demand.
And then came COVID-19, causing the GDP to decline by 23.9% year over year’ in the first quarter (April
to June) of FY2021 – the largest GDP contraction recorded in a quarter since India began reporting
quarterly data (in the mid-1990s). While supply-chain disruptions and closure of factories and industries
led to a reduction in gross fixed capital investment by 47.1%, private consumer spending also dropped
by 26.7%
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.However, India is likely to bounce back with an impressive 8.8 percent growth rate in 2021,
thus regaining the position of the fastest growing emerging economy, surpassing China's
projected growth rate of 8.2 percent, the IMF said in its latest ''World Economic Outlook'' report.
Recent Developments
With the improvement in the economic scenario, there have been various investments in various sectors
of the economy. The M&A activity in India reached record US$ 129.4 billion in 2018 while private equity
(PE) and venture capital (VC) investments reached US$ 20.5 billion. Some of the important recent
developments in Indian economy are as follows:
• During 2019-2020 India's exports plunged by a record 34.57 per cent in March due to a steep
decline in shipments of leather, gems and jewellery and petroleum products, dragging the total
exports in 2019-20 down to $314.31 billion.
• Merchandise exports in March stood at $21.41 billion, down by 34,57 per cent compared to
$32.72 billion in the same month last year.
• Although CBDT has not made public the actual net direct tax collection in 2019-20, adjusting the
gross collection (RS 12.33 lakh crore) with refunds (Rs 1.84 lakh crore) show net collection of
around Rs 10.49 lakh crore during the fiscal, while The gross GST revenue collected in the month
of August, 2020 is 86,449 crore. The revenues for August are 88% of the GST collected in the
same month last year.
• India’s Foreign Direct Investment (FDI) equity inflow in India stood at US$ 49.97 billion in 2019-
20. Data for 2019-20 indicates that service sector attracted the highest FDI equity inflow of US$
7.85 billion, followed by computer software and hardware at US$ 7.67 billion,
telecommunications sector at US$ 4.44 billion, and trading at US$ 4.57 billion. India’s Index of
Industrial Production (IIP) rose 4.4 per cent year-on-year in 2018-19 (up to January 2019).
• Urban CPI increased by 8.9 percent on annual basis (September 2020 to September 2019) and
increased by 1 percent on monthly basis (September 2020 to August 2020). The annual average
inflation rate between September 2020 and September 2019 was 8 percent.
Road Ahead
India’s gross domestic product (GDP) is expected to reach US$ 7 trillion by FY30 as per data on 3-01-
20 ,and achieve upper-middle income status on the back of digitisation, globalisation, favourable
demographics, and reforms.
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India is also focusing on renewable sources to generate energy.In 2019 at UN climate summit, India
announced that it will be more than doubling its renewable energy target from 175GW by 2022 to
450GW of renewable energy by the same year.
India is expected to be the third largest consumer economy as its consumption may triple to US$ 4
trillion by 2025, owing to shift in consumer behaviour and expenditure patter
Industry Analysis
Legal cigarettes account for only 10% of tobacco consumed in India due to a punitive and
discriminatory taxation of around 86% and other regulatory regime. This implies that even though
smokeless tobacco has the highest rate of consumption, more revenue is earned from legal
cigarettes.
India is the second largest producer and third largest exporter of tobacco in the world.
28.6% population of India consume tobacco in any form , where 52.4% of Indian males consume
tobacco as compared to 21.5% of females.
Revenue in the smoking tobacco segment amounts to US$ 4,067.4m in 2020. The market is expected
to grow annually by 1.6%(CAGR 2020-2023).
Annual per capita adult cigarette consumption in India is approx. one‐ninth of world average.
Legal Cigarettes contribute 87% of Tax Revenue, despite constituting only 10% of Tobacco
consumption
Tax collection from cigarettes- Rs. Crore
40000
35000
30000
25000
20000
15000 Tax collection from
cigarettes- Rs. Crore
10000
5000
0
1 3 5 7 9
2 01 2 01 2 01 2 01 2 01
1 0- 1 2- 1 4- 1 6- 1 8-
20 20 20 20 20
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Company's Financial Summary of 5 years
Key Financial Ratios of ITC (in Rs.cr)
Per Share Ratios
PE Ratio(Rs.)
40
35
33.4
30
28.3 27.83 26.95
25 PE Ratio(Rs.)
Linear (PE Ratio(Rs.))
20
16.86
15
10
5
0
2015-2016 2016-2017 2017-2018 2018-2019 2019-2020
7
Basic Earnings per share in (Rs.cr.)
14
12 12.26 12.33
10 10.19 Basic Earnings per share in
9.22 (Rs.cr.)
8 8.43
Linear (Basic Earnings per
share in (Rs.cr.))
6
0
2015-2016 2016-2017 2017-2018 2018-2019 2019-2020
Profitability Ratios
Return on capital employed
Return on capital employed in %
34
33 32.76
32
31 30.87 30.7 Return on capital employed
30 in %
29 29.26
28 28.18
27
26
25
Net Profit Margin
8
Net profit Margin %
35 33.17
30 27.62 27.7
26.72
25.44
25
Net profit Margin %
20 Polynomial (Net profit
Margin %)
15
10
0
2015-20162016-20172017-2018 2018-2019 2019-2020
Liquidity Ratios
Current ratio
5.93
6 5.61 5.68
5.1
5
4.32
4.02
4 3.59
3.07 current ratio
3 2.77 inventory turnover ratio
2 1.65
0
2015-2016 2016-2017 2017-2018 2018-2019 2019-2020
Dividend payout ratio (NP)%
9
Dividend payout ratio NP %
2019-2020 46.56
2018-2019 50.42
Dividend payout ratio NP %
2017-2018 51.41
2016-2017 67.05
2015-2016 69.48
0 10 20 30 40 50 60 70 80
Valuation Ratios
Enterprise value (cr.)
Enterprise value in (cr)
400000 359951.82
337944.56
350000 309724.29
300000 257453.88
250000 204588.2
200000
150000 Enterprise value in (cr)
100000
50000
0
16 17 18 19 20
- 20 - 20 - 20 - 20 - 20
15 16 17 18 19
20 20 20 20 20
PE Ratio
10
PE Ratios
35
33.11
30
28.88
27.71
25
20 PE Ratios
18.83
15
13.81
10
0
2015-2016 2016-2017 2017-2018 2018-2019 2019-2020
Company Anayalsis
What makes ITC a good Investment:
Company is more than 100 year old, started business by making and selling cigarettes.
Company has been consistently performing well for the past many years.
Company has High ROCE and zero debt, and strong free cash flows.
Company is market leader in cigarette industry with 80% market share. Major part of
company’s revenue comes from cigarettes business.
Company diversified in FMCG and foods segment, with a wide variety of products to offer
company has recently crossed 10,000 crore revenue milestone and targets 100,000 crore
revenue from FMCG segment by 2030.
Journey Towards a Market Leader across all Business Verticals
ITC has been achieving a leadership in all the business ventures it had explored in India.
It has occupied a front runner position in the tobacco and paper business of the country.
The multinational conglomerate also sells about 81% cigarettes and bidi in the entire Asia.
Its hotel chain business has occupied a significant position among the top three players.
In the FMCG sector, ITC share price has been capturing the market in high clutter categories
like noodles, biscuits, salty snacks and personal care products.
In the upcoming years, ITC has also planned to amplify its Dairy Products on a large scale.
Company is expanding its business to multi-specialty hospitals, taking advantage of medical
tourism and affordable health care provided by country.
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ITC Ltd – Quantitative Analysis
Let’s see the key performance parameters of ITC:
Return on Capital Employed (ROCE) = 34.62% Strong ROCE number gives the an idea about how
efficiently ITC is generating profits from its capital employed across its diversified business
segments.
Return on Equity (ROE) = 22.69%
Debt to Equity Ratio (D/E) = 0.00 The Company is virtually debt free. Amidst the current
lockdown due to COVID-19 pandemic, the debt-free companies have an extra edge over its
peers by the investors.
The concern of repaying the interest on the Loans amid dampened revenue and cash flows would not be
the case for ITC.
Dividend Yield = 5.20% Stock is providing a good dividend yield of 5.20%. The company has
declared dividend of Rs.10.15 per ordinary share for FY20.Also, the company has been
maintaining a healthy dividend payout of 55.94%.
Heavy Weightage in Key Indices
ITC Ltd stock is having a strong weightage in key Indices ie. Sensex and Nifty 50
Sensex has ITC weightage of around 4.7%.
Nifty 50 has a weightage of 3.87% for ITC Ltd.
A heavy weightage of ITC stock in India’s Key Indices infuse a great flow of passive funds. It
would benefit ITC to build a huge valuation in the long-term.
The current Price to Earnings Ratio (PE) of ITC Ltd is around 16.85. It shows the stock is currently
Trading at a very Good Discount to its Historical Valuation. The current PE ratio is at discount to
even 2008 Financial crisis, where the PE ratio of ITC was around 19-20.
Thus, we can say that there is very limited downside risk.
The current economic conditions due to COVID-19 lockdown, would have an adverse impact on ITC’s
earnings for a quarter or two. However, the company would be able to sustain the earnings growth in
the long run backed by improvement in cigarettes as well as FMCG segments.
Summary
It can be clearly understood that the cigarettes business has the lion’s share in the business of ITC Ltd.
The EBIT contributions of the various business verticals give clear image of the ITC has not yet been able
to successfully diversify in their businesses.
From valuation perspective, the cigarette business of ITC still has lot of growth opportunities.
Overall, there has been no change in the business of ITC Ltd.
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The company is rated negatively on 2 parameters (environment & Social), because of which institutional
investors may avoid this stock.
References
1. ITC Limited, Reports and Accounts 2020
2. ITC Limited, Reports and Accounts 2019
3. ITC Limited, Reports and Accounts 2018
4. ITC Limited, Reports and Accounts 2017
5. ITC Limited, Reports and Accounts 2016
6. “ABOUT INDIAN ECONOMY GROWTH RATE & STATISTICS”-
https://www.firstpost.com/business/indian-economy-may-contract-by-10-3-in-2020-to-bounce-
back-with-8-8-growth-in-2021-says-imf-8911251.html#:~:text=Business-,Indian%20economy
%20may%20contract%20by%2010.3%25%20in%202020%2C%20to%20bounce,growth%20in
%202021%2C%20says%20IMF&text=%22As%20a%20result%2C%20the%20economy,growth
%20rate%20was%204.2%20percent.
7. https://blog.investyadnya.in/why-is-itc-ltd-stock-falling/
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