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ITC ltd
Valuation Report

CMP: ₹410/- (BSE: 500875)

ITC ltd DCF

Valuation Report
Author
Piyush Kumar
[email protected]
Global Consilient Research
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Financial Statements
Profit & Loss Statement (Amt in Crs.) Balance Sheet (Amt in Crs.) Cash Flow Statement (Amt in Crs.)
Particulars Mar-21 Mar-22 Mar-23 Mar-24 Particulars Mar-21 Mar-22 Mar-23 Mar-24 Particulars Mar-21 Mar-22 Mar-23 Mar-24
Sales 49,257 60,645 70,919 70,866 Liabilities
Expenses 32,193 40,021 45,215 44,634
Net Income 49,257 60,645 70,919 70,866
Equity Share Capital 1,231 1,232 1,243 1,248
Gross Profit 17,065 20,623 25,704 26,233 Depreciation & Amortization 1,646 1,732 1,809 1,816
Gross Profit Margin 34.64% 34.01% 36.24% 37.02% Reserves 59,116 61,223 67,912 73,259
Receivable (66) (732) (884) (934)
Borrowings 271 249 306 303
EBITDA 17,064.78 20,623.15 25,704.26 26,232.56 Other Liabilities 13,143 14,491 16,370 16,944
Payable 1,112 1,099 1,058 141
EBITDA Margin % 34.64% 34.01% 36.24% 37.02% Total Liabilities 73,761 77,196 85,831 91,754 Inventory (1,460) (466) (1,098) (2,545)
Cash Flow from Operating Activities 12,527 15,776 18,878 17,179
Other Income 2,576.95 1,909.72 2,097.64 2,803.77
Depreciation 1,645.59 1,732.41 1,809.01 1,816.39 Assets Fixed Assets Purchased -1837 -2142 -2743 -3563
EBIT 17,996.14 20,800.46 25,992.89 27,219.94 Net Block 23,298 24,232 25,851 27,820 Fixed Assets Sold 3 133 49 107
Capital Work in Progress 4,011 3,226 3,003 2,861 Other Investing Items 1051 -2494 -733 1187
Interest 57.97 59.99 77.77 80.06
Investments 24,871 24,841 29,415 31,114 Cash Flow from Investing Activities 5740 -2238 -5732 1563
Profit before tax (PBT) 17,938.17 20,740.47 25,915.12 27,139.88
Other Assets 21,580 24,898 27,561 29,959
Interest Paid -41 40 -41 -46
PBT Margin % 36.42% 34.20% 36.54% 38.30% Total Non Current Assets 1,160 1,231 1,436 1,957
Proceeds from Borrowings 0 0 0 8
Tax 4,555.29 5,237.34 6,438.40 6,388.52
Net Profit 13,382.88 15,503.13 19,476.72 20,751.36 Dividend Paid -18881 -13788 -15418 -19899
Working Capital 8,438 10,407 11,192 13,015
Debtors 2,502 2,462 2,956 4,026 Cash Flow from Financing Activities -18881 -13580 -13006 -18551
Inventory 10,397 10,864 11,771 14,153
% Growth (Y-O-Y) - 15.84% 25.63% 6.54%
Net Profit Margin % 27.17% 25.56% 27.46% 29.28% Cash & Bank 4659 4654 4880 7218
EPS 10.69 12.37 15.44 16.39 Total Current Assets 457.14 428.22 869.04 970.41
% Growth (Y-O-Y) - 15.68% 24.85% 6.12% Total Assets 1,617 1,659 2,305 2,927

Source: Screener.in
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Business Overview
Established in 1910, ITC is the largest cigarette manufacturer and seller in the country.
ITC operates in five business segments at present — FMCG Cigarettes, FMCG Others,
Paperboards, Paper and Packaging, and Agri Business.

Business Segments

1. FMCG – Cigarettes (42% of revenue, 78% of PBIT)

ITC holds an 80% market share in India’s organised cigarette market with brands like
Gold Flake, Classic, Navy Cut, and Insignia. The segment grew 7% YoY in Q2 FY25,
supported by volume growth and a stable tax regime.

2. FMCG – Others (26% of revenue)

This segment spans packaged foods, personal care, stationery, agarbattis, and more,
with brands like Aashirvaad, Sunfeast, Bingo, YiPPee, Fiama, and Classmate. It reaches
over 25 crore households. Revenue grew 5% YoY in Q2 FY25, led by staples and
convenience foods.

3. Agri-Business (17% of revenue)

Among India’s largest exporters of agri-products such as leaf tobacco, spices, and
marine goods. Operates across 22 states with 3 MnT handled annually. Q2 FY25
revenue rose 47% YoY, driven by tobacco and value-added product exports. Source: Screener.in
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4. Paperboards, Paper & Packaging (6% of revenue)
India’s leading producer of premium and sustainable paperboard products. Q2 FY25 revenue grew 2% YoY due to weak demand and
pressure from Chinese imports.

5. Hotels (4% of revenue)

Operates 130+ hotels with 12,000+ rooms across luxury to mid-market segments under brands like ITC Hotels, Welcomhotel, Fortune,
and Storii. The hotel business was demerged into ITC Hotels Ltd in Jan 2024, with listing expected by Feb 2025.

6. IT Services (5% of revenue)

ITC Infotech provides digital solutions across BFSI, healthcare, manufacturing, and travel. It acquired Blazeclan Technologies in Oct 2024
to strengthen its cloud and digital capabilities.

Source: Screener.in
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Indian Economic Scenario*

The Indian economy, while remaining relatively resilient in the face of a sluggish
global environment, is currently experiencing a slowdown in growth momentum.

As per the latest data:

•Real GDP growth for FY25 is estimated at 6.4%, a decline from 8.2% in FY24.
•The quarterly trend shows a consistent drop, with Q2 FY25 GDP growth at just
5.4%, down from 8.6% in Q3 FY24.
•Manufacturing growth has seen a significant deceleration, dropping from a high
of 14.3% in Q2 FY24 to just 2.2% in Q2 FY25.
•Similarly, Fixed Investments have lost steam, falling from 11.7% in Q2
FY24 to 5.4% in Q2 FY25.

This broad-based slowdown in both manufacturing and investments indicates that

while the Indian economy continues to grow, the pace has moderated considerably.
Strategic policy support and revival in private sector investments could be key to
sustaining momentum in the coming quarters.

*Source: ITC Investor PPT Q3FY25

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Valuation Methodology
Based on our DCF model, we estimate the fair value of ITC Ltd. to be ₹331.46 per share, implying a 23.4% downside from the current
market price of ₹410. The valuation reflects our view that while ITC remains fundamentally strong and cash-generative, current market
prices may be factoring in a more optimistic earnings trajectory, especially from its non-cigarette businesses.

Our valuation is based on the Free Cash Flow to Firm (FCFF) approach, projecting cash flows over a 5-year explicit forecast period (FY24–
FY28), followed by a terminal value to capture value beyond the forecast horizon. And we have taken Terminal Growth rate as 4%, indicating
a slow growth period after the explicit forecast period.

WACC: We assume a Weighted Average Cost of Capital (WACC) of 11.18%, reflective of ITC’s risk profile and sector dynamics. With a cost
of equity of 12.5%, which seems reasonable to us for a company like ITC.

FCFF Growth: Free cash flows are projected to grow from ₹21,573 Cr in FY24 to ₹36,203 Cr in FY28, driven by steady earnings growth
across the Cigarettes, FMCG, and Agri verticals.

The present value of terminal value (calculated using the perpetuity growth method) stands at ₹3,08,861 Cr.

Firm Value is estimated at ₹4,08,855 Cr, which includes the PV of forecasted FCFF and terminal value.
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Valuation Results
At the current price of ₹410, ITC trades at a 23.7%
premium to our estimated intrinsic value. Our model
reflects a conservative outlook on long-term cash flow
growth from the non-cigarette verticals, particularly
FMCG Others and Hotels, which remain margin-dilutive DCF Units 2024 2025 2026 2027 2028
Free Cashflow ₹ 21,573.36 23,916.61 26,989.08 30,991.89 36,203.39
at present. The valuation also embeds a relatively stable
regulatory regime for the core cigarette business and WACC 11.18%
assumes moderate reinvestment needs. Discount Factor # 0.90 0.81 0.73 0.65 0.59
Discounting Period 1 2 3 4 5

While we acknowledge ITC’s strong cash flow profile, PV of FCFF 19,404.51 19,349.49 19,640.07 20,285.61 21,314.45
brand equity, and execution capabilities, especially in Sum of PV of FCFF 99,994.13
staples and personal care, we believe the current market Terminal Value 5,24,612.31
PV of Terminal Value 3,08,861.19
valuation prices in significant optimism on faster
margin recovery and value unlocking post the hotel Firm Value 4,08,855.32
demerger. + Cash 4880.19
- Debt 306.04
Equity Value 4,13,429.47
This model is purely based on our assumptions and we No of Shares 1,247.30
can be wrong too. Investor discretion is advised. Value per share 331.46
Price per share 410
Over/undervalued 23.70%
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Remarks
This valuation analysis is purely based on our internal estimates, assumptions, and modelling inputs as of the date of this report. The
projected cash flows, WACC, and terminal growth assumptions used in this DCF model reflect our independent view of ITC Ltd.'s potential
intrinsic value under a specific base-case scenario.

This document is not intended to serve as investment advice or a stock recommendation. Investors are advised to conduct their own due
diligence and consult with certified financial advisors before making any investment decisions. Market conditions, regulatory developments,
or company-specific events may materially impact the assumptions used in this model.

About the Analyst

Piyush Kumar is the head of investment research and strategist, as well as the founder of Global Consilient Research, a prominent global
equity research firm. With 5 years of extensive experience in capital markets, equity research, and analysis, Piyush has established himself as
a knowledgeable and skilled professional in the financial sector. Under his leadership, Global Consilient Research provides in-depth equity
analysis and strategic insights, helping investors make informed decisions in the global market. Piyush's expertise and strategic vision
continue to drive the firm's success and reputation in the industry.