A discussion on #ITC fundamentals

ITC shares have increased by almost 24 percent in CY2022, substantially outperforming the sectoral index Nifty FMCG, which has gained only 1 percent. This comes at a time when many consumer companies' shares have been battered by a slowdown in rural demand and a sharp surge in costs following the start of the Russia-Ukraine war.

From fiscal year 2017 to fiscal year 2021, ITC's shares declined 10%, while the Nifty FMCG index increased 81%.

So what is the matter and what is the path ahead?

o With rising interest rates, firms with extremely high multiples but no free cash flow have been punished. This is most noticeable in the technology sector.

o Investors have recognised the importance of being protective. As a result, they are increasingly valuing beaten-down companies that generate a lot of cash flow. In this case, ITC offers good value as well as an appealing dividend yield.

o ITC’s new products like as Classic Connect, Gold Flake Indie Mint, and others are gaining ground against illegal trading.

o Analysts estimate the company’s cigarette volumes grew around 9% in Q4 of 2021-22.

o Diversification away from cigarettes is critical for ITC as it strives to improve its ESG credentials. It has since grown into 'FMCG others' (branded packaged food, personal care items, and so on), hotels, agri-business, and paper products and packaging.

o As per analysts, the stock can be triggered by two major events. One is the (possible) sale of an ITC share by a Specified Undertaking of the Unit Trust of India (Suuti). Second, there is the (possible) demerger of the 'FMCG others' industry. However, these are only temporary triggers.