TABLE OF CONTENTS

 INTRODUCTION ......................................................................................................................2
Timeline of the Organization until the last decade...........................................................................2
ITC’s Vision and Mission ..........................................................................................................................2
ITC(‘s) Presence.........................................................................................................................................3
Profile in the Recent Past...........................................................................................................................4
Growth at the end of the last two decades..................................................................................................4
 History of ITC and Tobacco Business........................................................................................................5

 MACRO ECONOMIC ANALYSIS...........................................................................................6

Global Macro Economic Analysis of Tobacco...........................................................................................6
Domestic Macro Economic Analysis of Tobacco.......................................................................................9
Domestic Macro Monetary Policies in the recent past............................................................................11

 INDUSTRY ANALYSIS ...............................................................................................................12

PESTLE analysis of the Tobacco Industry ..............................................................................................12
About ITC Limited....................................................................................................................................13
ITC’s competitors in Tobacco Industry:...................................................................................................14

 FINANCIAL ANALYSIS ............................................................................................................16

A comparative analysis with the competitors...........................................................................................16
Analysis of ITC Limited in the past 5 years –...........................................................................................18
Where is ITC within the Industry and Where do we see ITC in the next 5 years?...................................19
 INTRODUCTION –
ITC Limited is, a multinational conglomerate company, that was established in 1910. ITC
Limited has diverse businesses in ranging from FMCG (Fast Moving Consumer Goods),
Hotels to Agricultural Business and Information Technology. The Organization was
incorporated under the name “Imperial Tobacco Company” on 24 August, 1910. In the year
1970, Imperial Tobacco Company was modified to India Tobacco Company. Fast forwarding
to September, 2001 it was decided to rename the company to ITC Limited recognizing the
vast multi-portfolio businesses.

 Timeline of the Organization until the last decade –

1910 - Establishment
1925 - Packaging and Printing Business
1954 - The Company was converted into a Public Limited Company on 27th
October.
1975 - Hospitality Sector - 'ITC-Welcome group Hotel Chola'
1979 - Paperboards Business - ITC Bhadrachalam Paperboards Limited
1985 - Nepal Subsidiary - First outside India - Surya Nepal Private Limited
1990 - Paperboards and Speciality Papers - Acquired Tribeni Tissues Limited +
Agricultural Business - Agri Business Division"
2000 - Lifestyle Retailing - Wills Lifestyle + Information Technology - ITC Infotech
India Ltd
2001 - Branded Foods - Acquiring millions of households
2002 - Stationery and Education - (Paper kraft +Classmate) + Agarbattis and Safety
Match sticks
2005 - Personal Care & Hygiene
2010 - Expanded Tobacco Portfolio – Armenteros

 ITC’s Vision and Mission –

Core Values -
Trusteeship - Customer Focussed +
Customer Focus -
Redeem the trust of the High Performance
Value + Quality +
shareholders by adding Organization which
Satisfaction
value. creates value for its
stakeholders.

Nation Orientation - Innovation -

Respect for People - Excellence -
Generate economic value Better process,
Respect and dignity to To do the right thing, to
for the nation and abide by products and
all humans do it well and win.
all laws and regulations management practices.
 ITC(‘s) Presence: -

Being evaluated as the world’s biggest companies, ITC is the most valuable company
having its presence in –

Incense sticks
and Safety Cigarettes
Matches

Information Branded
Technology Apparel

Personal
Paperboards
Care

Agriculture
Packed foods

Hotel
Stationery

- Cigarettes: Insignia, India Kings, Lucky Strike, Classic, Gold Flake, etc.
- Paperboards and specialty papers: From packaging, graphic, communication, writing,
printing and specialty paper requirements – More than 50 dealers across India.
- Stationery: Classmate, Paper kraft (notebooks, pens, pencils)
- Personal Care: Essenza Di Wills’, Fiama Di Wills, Vivel, Engage, Superia etc.
- Apparel: Wills Lifestyle & John Players.
- Packed Foods: Aashirvaad, Sunfeast, Bingo! Kitchens of India, mint-o, Candyman
and Yippee! 
- Incense sticks and Safety Matches: Mangaldeep, AIM match sticks.
- Agriculture: ITC – Agri business Division, deals with exports of Indian Agri
Products.
- ITC Hotels
  Executives of ITC Limited as of 31 March 2020: -
- Chairman & Managing Director: Sanjiv Puri
- Chief Operating Officer: V Kulkarni
- Chief Financial Officer and Executive Director: Rajiv Tandon
- Vice President-Finance, IT and Procurement: Jagdish Singh
- Compliance Officer & Head-Investor Service Centre: Tunal Kumar Ghosal

 Profile in the Recent Past: -

Comprising 2.5lakh crore of capitalized market.

Sustainable employment of over 6 million.

Sales growth of $10.6billion of which 60% sales are from the non-cigarette
segments

Leading FMCG organization in India alone. - with 25+ established top brands.

A global enterprise that sustained 3 global indices of environmental

sustainability -
*Water Positive for 18 years
*Carbon Positive for 15 years
* Solid waste recycling positive for 13 years

 Growth at the end of the last two decades: - (Exhibit 1A)

Factors 2019-2020 2009-2010 CAGR (In crores)

Net Revenue 45,266 18,153 9.57%

Profit Before Tax 19,299 6,015 12.36%

Profit After Tax 15,136 4,061 14.06%

Capital Employed 65,655 19,409 12.96%

Return on Invested 58% 44%
Capital
Return on Capital 72% 48%
Employed

As calculated, the
CAGR (Compounded Annual Growth Rate) over the last two decades has shown a significant
 History of ITC and Tobacco Business: -

ITC being a conglomerate producing various products catering different market segments –
We, here are focussing mainly on Tobacco (Cigarettes and Cigars) produced by ITC. As read
earlier, ITC began its establishment and was recognized as Imperial Tobacco, mainly for the
business it involved it and only much later, as they diverse they were renamed to ITC only
without any specific attribute to Tobacco.

The evolution of this business dates back to 1902, back in the United States of America when
two companies, Imperial Tobacco Company and American Tobacco Company merged and
formed the parent company named BAT. When BAT began to expand its presence in India, it
grew rapidly, and was at last left at Imperial Tobacco Company of India.

Imperial Tobacco Company of India succeeded the W.D & H.O. Wills. W.D. & H.O. Wills
dates back its existence to 1786, a British tobacco importer and manufacturer company that
was registered in Calcutta, India. ITC ventured into partnerships with farmers for their benefit
and the company’s benefit to grow Tobacco Leaf, as a result of which ‘Indian Leaf Tobacco
Development Company Limited’ was formed in Guntur, Andhra Pradesh.

Having dedicated 6 decades from its establishment, towards growth and development of
Cigarette and Leaf Tobacco Business. The first plant was set up in Bangalore in the year
1913. Over the years, as the business grew, a factory of Carreras Tobacco Company was
acquired by ITC to strengthen its market presence. Carreras Tobacco Company also has its
roots from the British grounds and was well established in London until further acquired by
Rothmans of Pall Mall. ITC acquired many other manufacturers in India and slowly became
on top of its game.

BAT strategized the reorganization of ITC in such a way that investments be smoothly
streamlined. On the other hand, as a change in the political and economical environment in
India, Multinationals were required to dilute their 1Crore worth of shares to the Indian Public.
BAT was still a part of the organization, but as years passed the Government of India with the
help of many State-run Financial Institutions had become the largest holder of shares in ITC
Limited. As disinvestment gradually increased, the priorities of the company also began to
change and ITC had to choose to diversify than to solely depend on the manufacturing and
Sale of Cigarettes.

On a rough scale, ITC sells about 81-83% of the Cigarettes in Asia. While the overall
cigarette market in Asia is valued up to $11-$12 billion.

Under the Cigarette and Cigars products, ITC produces close to 17 – 18 different brands –
namely Wills Navy Cut, Gold Flake Kings, Gold Flake Premium lights, Gold Flake Super
Star, Insignia, India Kings, Classic (Verve, Menthol, Menthol Rush, Regular, Citric Twist,
Ice Burst, Mild & Ultra Mild), 555, Silk Cut, Scissors, Capstan, Berkeley, Bristol, Lucky
Strike, Players, Flake and Duke & Royal, Wave.
 MACRO ECONOMIC ANALYSIS–

 Global Macro Economic Analysis of Tobacco

By 2027, global tobacco production is expected to reach $1.08 trillion with an expanding
CAGR at 3.1% over the period. Market is expected to drive up because of the increase in
number of smokers and introduction of new products to cater to their tastes and preferences.

A survey shows from 2016 till 2019, smokers have moved to E-cigarettes, seeing an increase
of close to 14.5%. Many countries producing and selling tobacco have upped their game to
produce to the needs of the smokers. For example, Japan Tobacco Inc launched a heat-not-
burn (HNB) product in Japan. The company also invested on its Research and Development
to produce and develop products which have no or minimal risk and alternatives to cigarettes.

Supportive government laws and

regulations to provide food and tobacco Invention of less harmful productsare
products in Middle East and Africa is expected to grow at a CAGR of 10.7%
expecting 4.4% of CAGR from 2020- from 2020 to 2027.
2027
Highlights of the
Global Tobacco
Industry
In 2019 alone, Cigarettes generated a
35% of the Global Tobacco revenue is revenue of $598.40 billion. Tobacco
from Asia Pacific. The penetration of industry has played a major role in
Tobacco products within APAC amending and manupulating the
countries has grown over the years. governement policies considering the
immense growth.

In 2019, Tobacco market was about $849.09billion expected to grow further with 3.1% of
CAGR.

Various Factors influence such a growth in a product that the consumers know is going to
cause harm. Some of which are: -

1. Increase in Consumer Disposable Income

2. Increase in the new product launches
3. Availability of “quality” products that state to cause less or no harm.
4. Social Factors (Societal norms)
5. Peer pressure
Considering Tax and Price are major influencers in the global front, we can distinguish
tobacco industries in developed countries to developing countries.
In the US alone, the tobacco market has seen only growth, especially amongst students.

Cigarettes are priced at different rates in different nations depending on the demand and
supply of the product in their markets. But in case of Cigarettes, mainly by chain smokers or
otherwise, an increase in price could lessen the demand by about a percent or two but the
consumption level will still remain intact. The one or two percent of the consumption
population could divert to cheaper substitutes or prefer an E-Cigarette.

Many economists believe the demand for Cigarettes is not influenced by the basic principles
of economics. However, on the other hand, Supply or production of cigarettes more or less
depends on the demand. The supplier knows for a fact that, for every 1 smoker who decides
to quit there are 2 non-smokers who could convert to be a smoker. So, when there is abundant
spare capacity, any organization should be able to produce more with less or no increase in
costs.

From elasticity point of view, we can say the price elasticity of tobacco is usually <1 or that it
is inelastic because if the price increases the consumption reduces at a very less percentage
compared to the increase in price. Over different parts of the world, we see price elasticity of
tobacco as below: -
Country Cigarette
Price
Elasticity
Bulgaria -0.80
Taiwan -0.66 We see a negative effect of tax and price increase
Republic of Korea -0.61 of Tobacco in developing nations, the demand for
Indonesia -0.61 tobacco products are less responsive in countries
United Kingdom -0.56 with high income population than low-middle
Egypt -0.47 income population.
United States of America -0.37
Though we estimate the demand keeping price as a factor to derive the increase or decrease,
we can replace price with Tax and Income and still be able to determine the demand.
However, over different parts of the world, we see income elasticity of tobacco as below: -
Country Income
Elasticity
Turkey 0.56 We know, greater the value of income elasticity more
Egypt 1.60 sensitive the country is towards demand to income
Ukraine 0.30 change.
China 0.90
So, in case of, countries with low- or middle-income
Bangladesh 0.23
categories are expected to have more positive
South Africa 0.59
inclination towards change in demand, which means,
Poland 0.43
they are to consume more of Tobacco over a short
period of time.

For example, a country with an annual GDP of 3 % and an income elasticity of 0.4, tobacco
consumption is estimated to grow annually at 3 × 0.4 = 1.2%.

To conclude on the Global Macro Economic Analysis of Tobacco: -

An increase in tax is expected to cause an increase in price leading to decrease in demand, but in
case of Tobacco, the chances are very minimal and may cause no difference at all.

Consumers are willing to spend a little more than usual to meet their demands in case of
countries with higher income, but in countries with low or middle income, the tobacco
consumers may divert to a lesser expensive product or quit the consumption

Though Tobacco causes and has harmful affects, they contribute a major chunk towards the GDP
and global revenue or to a country's revenue, given there is a great population of smokers.
  Domestic Macro Economic Analysis of Tobacco: -

India has a variety of products (in tobacco) produced to cater to the different
populations with a difference in the socio-economic and demographic factors. From Bidis to
Cigarettes to several types of chewing tobacco (Gutka, etc) the taxes imposed on each of
these vary from product to product. In comparison to other countries, India has less taxes
levied on Tobacco and taxes are much less on those products which are consumed more.

Below is a survey showing the prevalence of different forms of Tobacco between 15-49years
of age: -

Tobacco consumption is an avoidable factor in the growth of non-contagious diseases in

developing countries like, India. Economics of Tobacco in India are -

Four MNCs contribute to the all of India's Cigarette Manufacturing and account for about 3.4-5 billion
of annual revenue

Health consequences of Tobacco - Despite knowing the harm that Tobacco can cause many continue
to smoke because they are addicted. Death rate is seen the highest amongst those who smoke and are
in between the age 30-69. Health care costs from tobacco use burden the annual health budgets.
India spent about $6.2billion on just tobacco related illness.

India is the world's 3rd largest producer of Tobacco after China and Brazil. The tobacco produced in
India is consumed mostly by the Indians within the country than exports.

Pattern in Consumption : It is noted that many educated females and males are more prone to smoking
cigarettes and often the tribal or the low/middle income populations smoke bidis and other forms of
Tobacco. Overall, an estimate of 120million Indians smoke of which men contribute the higher
percentage.

Employment - Indians involved directlty or indirectly in the tobacco workforce contribute to about 7-9
million respresenting a minimum of 5% of the total employment in the formal sector.
 Since we have spoken widely on the demand, supply and income side of economics, which
remains the same on a global or domestic level, in this topic we are specifically going to
concentrate on the Taxation of Tobacco in India.

 Taxation is the most effective ways to curb its consumption but many global
governments refuse to impose higher taxes on tobacco products, like in India, because
they believe the smoker consumes the tobacco having full knowledge of the affects it
causes on their health. So even if the taxes were imposed at the highest so to reduce
the consumption and thereby reduce the number of deaths cause by Tobacco related
illness, is not a wise choice.
 Structure and trends of Tobacco taxation: -

Excise tax
Tobacco products in India are subject to a schedule of taxes imposed by both central and state
governments. Most of the tobacco products are subject to an excise taxes that are levied as rupee
amounts per 1000 sticks.
Non smoking tobacco products are levied "Ad-Valorem" excise taxes on the retail price.

Central Government Taxes

Basic Excise Duties

National Calamity Contingency Duty
Health Cess
Special Excise Duty
Tax Receipts
State Government Taxes 12.5% of Ad Volorem VAT on cigarettes.
Luxury Tax + Octroi + Entry Tax
Goods and Services Tax(GST)
GST replaced the existing Central Excise and State VAT. it is a unified tax system that
does not change consumer choices at the margin. The idea of introducting this tax was to
regulate the consumption patterns of consumers.

 Recommendations on Taxation for the Indian Market: -

Increase in taxes for the Bidis and Cigarettes
Tighten Policies regulating bidi and Cigarettes production.
Strengthen Tobacco taxation laws
Additional tobacco control efforts.

Cigarette industry gives a lumpsum of revenue to the government and there are avenues of
growth in the industry, even if it means to provide employment. Government should take
persuasive steps for the consumers to quit or reduce their consumption even if it is a cash cow
industry.
 Domestic Macro Monetary Policies in the recent past: -
Owing to the Covid-19 crisis, RBI intervened into the monetary policies trying to
maintain as much liquidity in the economy.
1. RBI reduced the REPO rate by 75BPS to 4.4 percent in the month of march, 2020 and
the reverse REPO rate by 115 BPS to 3.75%, to enable better credit flow in the
financial market and help small business from recovering the losses incurred or to be
incurred because of the pandemic.
2. In response to the policy rates, lending rate was reduced to 8.15/9/40 percent. Term
deposit rates were also reduced to 5.7/6 percent.
3. Increase in liquidity in the banking system plus a reduction in the reverse repo
weighed on bond markets leading to go down on yield curves in April 2020.

4. In April 2020, Benchmarked Equity Indices showed massive gains after dropping in
March 2020 because of forecasting the aftermath of lockdown easing in major global
economies, India’s expanding business with China and encouraging the drug trials
results in the US.
5. Sensex and Nifty 50 recorded large gains helping them recover losses driven from the
Covid outbreak. BSE Sensex specifically rose by 14.4 percent in April preceding a
decline in March 2020.
 From the perspective of Tobacco Industry and the Pandemic, as reports suggest that a
smoker has more chances of contracting the virus, it is an opportunity for smokers to quit
smoking and on the flip side, encouraging the tobacco industry to launch products which
are less harmful. The Tobacco Industry has undermined the government’s credibility and
ability to save lives, during the “Covid-19” pandemic by partnering with NGOs that
protect and help people.

However, there are many more policies implemented domestically and globally, the IMF
has predicted India’s GDP to grow at 1.9 % in FY 20-21 but the lockdown is going to
impact the nationwide production. As the world continues to tackle the pandemic, every
country, like India has its focus on reviving the economy. GOI and RBI are working on
implementing better fiscal and monetary policies to act as an aid for affected sectors of
the economy.

 INDUSTRY ANALYSIS: -
Since, almost everything about the industry was covered in the previous sections –
 PESTLE analysis of the Tobacco Industry –
Political Taxes - as discussed earlier, governments instead of banning Tobacco, knowing for a fact
the adverse affect it has on the health, they apply higher tax rates. These decisions are
political as seen a trend over the years, depending on the ruling government tobacco
products either get harder or easier to purchase. This leaves the industry on the edge
where in they are also dependent on the ruling government for their products' movement.

Economic As broadly discussed in the previous sections, we can pick on: Disposable Income -
How much of money an individual is willing to spend on products that are not actually
necessary. The population of a country, the demographic factors, the nature of the
economy - developing or developed.

Tobacco contains nicotine, which is very addictive and causing people to not want to
SocioCultural quit the consumption. This means, the tobacco industry has a lot of consumers who are
loyal and it also goes out to companies on a micro level, because smokers or tobacco
consumers prefer their brand only. One of the many factors in Socio Cultural factors is
the social group that influences the consumer to either quit or do more of it.

Considering the current pandemic and the rise in awareness around how smokers are
Technological more susceptible to contracting Covid-19, Tobacco industry has and should place more
technological advancements from the manufacturing to the end product delivered. For
example, Vaping devices are said to be less harmful than the normal tobacco
consumption. Many smokers have switched to vaping because it has fewer negative
health effects.

Legal Age restrictions in countries plays a role in the tobacco industry. There are several laws,
which are country specific, like most of the developed countries expect the consumer to
be 18 and above to purchase and consume Tobacco in any form. Also, in some of the
cities, it is prohibited to smoke in public places. However on the other hand, it also
includes trade marks, acquisitions and packaging issues.

Environmental According to a study, when cigarettes are improperly discarded they release a hazardous
chemical into the atmosphere. One of the factors also includes passive smoking, the
release of waste or smoke from the tobacco industry is as harmful as any other industrial
waste.
 The tobacco industry is falling apart but also standing still in some cases. Given that,
consumers are still willing to spend their money on Tobacco, despite knowing its adverse
effects, shows that this industry grows on addiction and pressure. On the other hand, Tobacco
taxes are expected to be on the rise, making companies increase their prices and burden the
consumers to pay more for their purchase. However, increasing the prices will only bring
down the customer market, so the organizations in the industry are to look at various ways to
pivot their business.

 About ITC Limited: -

More or less was discussed in the beginning, let’s look at the SWOT analysis of ITC, as a
whole, considering its various vertical segments of businesses.

Strength
Strong Brands- Despite being diverse each product brand has its own market segment and is a market
leader.
Having a strong portfolio of over 6 diverse businesses where revenue is generated from a business can
negotiate with for a little loss in another business
Social business intiative - Intriduction of E choupal, Choupal Pradarshan Khet - looking at developing the
nations social,economic and environmental capital.
ITC has leveraged its diversity in bringing in Inter and Intra Divisonal Synergy to create value for its
customers.

Threat
Weakness Opportunities Less market restrictions bringing
Tobacco Products generating higher ITC should continue to acquire in more players into the market has
revenues than FMCG, shows ITC's companies, strategically, that could caused a havoc - ITC must diverse
dependence on Tobacco products be lagging behind in the market - and intensify its competition with
over essentials Like savlon, J&J - Looking out to other FMCG producers like
Many consumers are skeptical to expand its non tobacco products Patanjali,Dabur etc.
purchase any of ITC's products by taking over companies that are After the Covid crisis - It is
because of its relation to the a part of the FMCG industry uncertain as to what regulations
Tobacco Industry at large, already. the government would bring in
affecting its corporate image. Focussing on the growth and place that could pose a threat to the
As mentioned earlier, increase in development of the Rural Market Tobacco Business.
taxations on the Tobacco Products - Providing opportunities for people Rise in self awareness and various
could take a toll on the revenues, without losing out on the current organizations educating the youth
since here most of ITC's revenue workforce. and kids on the harmful side of
comes from Tobacco Products Tobacco could bring down the
demand in the recent future.

Cigarette market is 22,000 crore and ITC has a major chunk of share in it. It’s because of the
brand recognition, Distribution Network and Progressive Management. What could pose a
threat specifically to the Cigarette division could be the increase in domestic and international
market. Penetration of E-Cigarettes into the Indian Market could bring down the demand for
Cigarettes.
  ITC’s competitors in Tobacco Industry:

As studies suggest, there are above 6,600 bidi manufacturers in India compared to lesser
cigarette factories and smokeless tobacco factories. In India, over other manufacturers of
Cigarettes we have top 4 manufacturers, of which the remaining 3 are: -

1. Godfrey Philips India Ltd. -

Established in 1936 as an import company for Godfrey Philips, UK. Godfrey is
the second largest manufacturer of Cigarettes after ITC. The company has seen a
market growth of over 14-15%. Two major stake holders being – KK Modi Group
and Philip Morris.
They have a leaf division that produces and distributes within the country and
outside. Cigarette Segments accounts for 92% of Godfrey Philips’ revenue as of
2010.

As of March 2020, they have a consolidated sale of over 588.71 Crore down by 21
– 22 % owing to the pandemic. Their PAT was last reported as 38.43 Crore.

2. VST Industries Ltd. -

Established in 1930, earlier known as Vazir Sultan Tobacco Co., it was renamed
as VST Industries in 1984. It is the third largest producer of Cigarette in India
having 9% of market share. Over the years, VST industries saw a sharp decline in
the sales but VST gained back its market share, showing an increase in profits
right after the decline. Like ITC, VST is also an affiliate of BAT which holds 32%
of stake in the company. They sell economy priced cigarettes and have a strong
presence in South India.
 Apart from Cigarettes, they are also into tobacco leaf production.

As of March 2020, they reported sales is 291.34 crore, which was down by
15.09%. A PAT of 70.61 crore was reported in the last quarter.

3. Golden Tobacco -
Established in 1930 as the first wholly owned Indian Tobacco company in India.
GTC Industries holds 1% of market share in India. Having controlled 10% of the
market earlier, they faced a decline as years passed.
GST industries acquired Dalmia group and now has diverse interests in
telecommunications, chemicals and textiles. Dalmia holds 36% of the share in
GST industries.

A consolidated sales of 6.03 crore was reported in the last quarter with PAT of
-2.62 crore. Sales have dipped by 127.23% from the previous quarter.
 FINANCIAL ANALYSIS –
A process of identifying the areas of weakness, strength and how a company can financially
grow further, with the help of its Profit and Loss Statement, Cash Flow Statement and
Balance Sheet.
We have analysed ITC with its competitors in the Indian Tobacco Industry, for which we
have picked two companies, which are Godfrey Philips India Ltd and VST Industries Ltd.

 A comparative analysis with the competitors is as -

1. Market Capitalization: -
Though ITC holds a majority of the market, approx. 1.25 Lakh Crore even as the share
prices are lower than the rest. But on the other hand, we also see VST and Godfrey
Philips holding, approx. 154.4 crores and 520 crores of Market share being the mid-cap
companies.

2.Market Indices -
ITC has a huge volume of close to 1.25 crore being a part of BSE Sensex and Nifty 50 and
Other index funds. But daily, in VST industries or in Godfrey Philips we see a movement of
2000-3000 shares and 1-2lakh shares respectively.
Budget 2020 has affected Cigarettes and Tobacco Industry, since it increased the percentage
(10-13%) of excise duty. Adding to it, this will affect ITC stocks more than its peers because
of high free float market cap and huge volumes of trade every day.
For VST industries, in December 2019, a corporate action of taking 3.25% of stake in VST
industries by Mr. Radhakishan Damani – Promoter of Avenue Supermarts (DMart) could
prove to be positive.

3. Profit and PE ratio –

Profits of the 3 companies have been more or close the same compared their own
performances in the previous FY. The Price to Earnings ratio is also on the same range
(Please refer excel calculations) -
ITC Limited VST Industries Ltd Godfrey Philips India Ltd

16.22 16.35 12.18

What could be pointed out here is that, apart from Tobacco business where ITC generates
most of its revenue from (85% of the profits), ITC being a conglomerate has invested into
and gained positive revenues from its other portfolio business as well.

A further detailed analysis has been done in the excel sheet.

  Analysis of ITC Limited in the past 5 years –

Balance Sheet
Particulars Mar'20 Mar'19 Mar'18 Mar'17 Mar'16
Liabilities
Share Capital 1,229.22 3,223.80 1,220.43 1,214.74 804.72
54,725.9 44,126.2
Reserves & Surplus 62,799.94 50,179.64 32,071.87
9 2
57,949.7 45,340.9
Net Worth 64,029.16 51,400.07 32,929.00
9 6
Secured Loan 5.63 7.89 - 0.01 3.60
Unsecured Loan - - 11.13 17.99 25.83
57,957.6 45,358.9
TOTAL LIABILITIES 64,034.79 51,411.20 32,958.43
8 6
Assets
22,717.2 16,843.6
Gross Block 22,617.58 18,595.00 22,256.11
6 7
(-) Acc. Depreciation - 4,230.86 3,029.01 1,963.43 8,051.58
18,486.4 14,880.2
Net Block 22,617.58 15,565.99 14,204.53
0 4
Capital Work in Progress - 3,401.36 5,025.58 3,537.02 2,500.83
26,578.0 18,585.2
Investments 30,630.61 23,397.22 12,854.24
0 9
Inventories 8,038.07 7,587.24 7,237.15 7,863.99 8,519.82
Sundry Debtors 2,092.00 3,646.22 2,357.01 2,207.50 1,686.35
Cash and Bank 6,843.27 3,768.73 2,594.88 2,747.27 6,563.95
Loans and Advances 5,013.83 6,329.97 6,203.48 4,394.64 3,188.71
21,332.1 17,213.4
Total Current Assets 21,987.17 18,392.52 19,958.83
6 0
11,682.3
Current Liabilities 10,938.84 10,808.96 8,683.79 8,129.22
6
Provisions 261.73 157.88 161.15 173.20 8,430.78
11,840.2
Total Current Liabilities 11,200.57 10,970.11 8,856.99 16,560.00
4
NET CURRENT
10,786.60 9,491.92 7,422.41 8,356.41 3,398.83
ASSETS
Misc. Expenses - - - - -
57,957.6 45,358.9
TOTAL ASSETS 64,034.79 51,411.20 33,010.84
8 6

Financial Ratios for the past 5 years –

Mar'20 Mar'19 Mar'18 Mar'17 Mar'16

Quick Ratio 1.25 1.16 1.02 1.06 0.69
Current Ratio 1.96 1.80 1.68 1.94 1.21
Debt to Worth 1.00 1.00 1.00 1.00 1.00
Cash Ratio 0.61 0.32 0.24 0.31 0.40
 Asset turnover ratio 0.71 0.78 0.79 0.88 1.12
EBITDA Margin 45.85 43.98 43.49 41.32 43.55
EBIT Margin 42.43 41.07 40.68 38.73 40.74
Net Profit Margin 33.18 27.70 27.62 25.45 26.72
Operating Profit Margin 36.81 36.45 36.35 34.65 36.85
Return on Equity 0.76 0.82 0.83 0.93 1.17
Book value per share 0.52 0.47 0.42 0.37 0.41
equity
Earnings per share 12.31 10.17 9.20 8.40 12.23
1. Quick Ratio + Current Ratio + Cash Ratio: Quick ratio and Current ratio being above 1 is a
positive indicator. Both represent the solvency and liquidity factor of ITC’s financials. For every
1 Rupee of current liability ITC has 1.25 more to repay them. On the other hand, cash ratio
represents the efficiency of paying out short term loans/debts with the available cash in
hand/bank.
2. Debt to Worth: ITC has not invested or taken much loan over the period of 5 years for which
we see a consistency of 1 throughout. This helps us measure the financial risk, which means had
the ratio been 1.02, for every 1 rupee of net worth the owners have invested, the company owes
1.02 of debt to its creditors.
3. Asset Turnover Ratio: The ability of an organization to convert the assets into making more
sales. There has been consistency in ITC over the last 5 years though there may be a decline in
the sales from 2016 perhaps because of diversing their portfolio.
4. EBITDA and EBIT Margin: Both indicate a company’s profitability that shows its earnings
before interest, tax, depreciation and amortization. It gives investors and shareholders an idea of
the company’s performance. ITC has seen a consistently growing margin in both cases. Had
these margins fallen, it would indicate ITC has profitability problems and needs to work
progressively on growing their business.
5. Net Profit and Operating Profit Margin: On one hand, the operating profit margin determines
the operating efficiency of the company in relation to its net sales produced for the year. When
the operating profit is on a consistent level, we can say the operations at ITC are stable. On the
other hand, Net profit gives us an overall profitability of a firm, ITC financials shows us that
there is a steady growth in the profits overall.
6. Return on Equity: This ratio indicates the utilization of Equity in generating profits. Here
again, we notice stability which means ITC is maintaining fields of incorporating their equity
capital over years.
7. Book value per share and Earnings per share: Book value represents the per share value of a
company based on the shares available with the shareholders. On the flip side, Earnings per
share represents the net income earned for each share outstanding with the firm. With ITC, we
can see a decline from 2016 but in 2020, it has picked itself much better than what it was in
2016.

 Where is ITC within the Industry and Where do we see ITC in the next 5 years?

ITC’s cigarettes saw a major blowout after the Covid-19 led disruption during Q4 – Bringing
down the growth as below –
Until the situation slows down and lifestyle gets back square one, ITC must focus on
launching and producing more products that consumers would need during the pandemic
time. Though cigarettes contribute to major profits of the firm, cigarette volumes are
expected to go further down in FY21.

All sectors big and small have been affected by the pandemic and will take time to cope from
the losses incurred, meanwhile a company as large as ITC should diversify its portfolio and
focus on growth before hitting rock bottom. ITC should collaborate or acquire businesses
doing well in their segment to have a better customer reach.

Using this opportunity, ITC can widen its horizons and gain a larger market through their
FMCG businesses. Like in the recent years, ITC has diversed into frozen food, coffee and
fresh diary, it must continue to do so and divert its capital employment towards this side of
the businesses than spending a lumpsum on Tobacco Business. Bringing up new policies to
help farmers who are going to or have already hit Below Poverty Line by the end of the
pandemic.
For the quarter end, ITC has made sales of 11677.97 crore which is -12.25% lesser than the
last quarter sales. Company generated a net profit after tax for the quarter 3926.46 crore.
Tobacco Industry is a major contributor to India’s GDP being the 2nd largest exporter in the
world. Indian Tobacco Industry not only adds value to the lives of the rural families by
providing employment but also, enhances government revenue. The lumpsum amount of
excise levied on tobacco is paid by the producer and the consumer.

ITC alone is a brand that is most valuable in India and Abroad. It enlarges foreign exchange
earnings for the country by exporting. Despite all the negatives about ITC’s major revenue
generator, tobacco, the firm focusses on maximizing shareholder value. Shareholder returns
measured in terms of increase in capitalization of the market and dividends, it has grown to
22.3 % per annum and continues to do so. Being the foremost in the country in terms of
financing its capital efficiently, ITC continues to be the leader in almost all its businesses.

ITC is also ranked the global exemplar in sustainability -

Overall, ITC holds the most market share in the Tobacco Industry but in case of its other
business lines, ITC has Hindustan Unilever as its close competition. On a long term, we can say
ITC is better than HUL since the sales are much better, even if it is most from tobacco.

IN FMCG, ITC has still performed below par with its peers because of its base focus being
Tobacco. Since in recent times, ITC has strategized its growth into Multi-speciality Hospitals,
and other FMCG businesses, company is looking at generating better revenue and given the
brand it holds, capturing the market may come easy.
Despite lockdown and the pandemic, in India, 70-80 of its 120 manufacturing units in are
functional and running with government regulated capacity. According to the Chairman, reviving
the manufacturing and agricultural chains in non-containment zones will help kickstart the
economy and balance livelihoods. ITC is focussing mainly on production of essentials which are
going to create more sales during the pandemic.

In a recent report, Fitch Ratings slashed FY21 growth forecast for India to 0.8% from 2%, and
said that consumer spending will decline to 0.3% in FY21 from 5.5% in FY20, which is bad for
the consumer goods producers. To end the report, below is an overall glance of ITC –