ITC has been an outperformer of 2022 with the 1-year returns > 35%
This is important as ITC is a conglomerate that relies heavily on commodities to make finished goods. Commodities as we know are the worst hit with record prices around the world. ITC’s cigarette business ensures it is relatively protected from sharp inflationary pressures compared to its FMCG peers.
FMCG peers like HUL have been severely hit by this turbulence. The positive recovery is on the back of cooling crude oil prices and commodities in the recent month.
In order to reduce its over-dependence, ITC has diversified from its main product – cigarettes into other areas like FMCG (branded packaged food, personal care products, etc), hotels, agri-business, paper products, and packaging. (Ref)
Despite this, In 2021-22, standalone segmental gross revenues were as follows:
- Cigarettes contributed 36.3%
- Agribusiness: 25.1%
- FMCG (others): 24.8%
- Paper: 11.8% and
- Hotels: 1.9%
This does not bode well for ITC as it targets an image makeover for promoting its ESG credentials as the company has had an ‘AA’ rating from MSCI-ESG, an independent ESG data provider, for four years and is part of the Dow Jones Sustainability Emerging Markets Index(Ref). Taking this ahead, ITC aims to enhance the share of renewable energy usage to 50% of total energy consumption and meet 100% of its purchased grid electricity requirements from renewable sources (Ref)
All this will aid in attracting foreign investors who have ignored the stock owing to it being categorized in the “sin goods” category. It is interesting to note that ITC’s foreign shareholding dropped from 20.77% in December 2015 to 9.99% in December 2021.
So, for the ITC stock to touch 500 from the current value of 300, the following triggers will be essential
- Revenues from other categories overtaking Cigarettes
- Demerger of businesses for unlocking value (like IT, FMCG, Hotels, etc.)
- Stake sale of ITC by Specified Undertaking of the Unit Trust of India (Suuti) as it owns ~8% in the company
Without these steps coming into play, a 50–75% appreciation in the stock value from the current price would be too optimistic.
Stick to quality and maintain discipline for wealth creation.
Hope this helps