Executive Summary

The purpose of this report is to provide a detailed financial model of ITC (Indian Tobacco
Company), focusing on its historical financial performance, projected growth, and valuation.
ITC operates in diverse business segments, including fast-moving consumer goods (FMCG),
hotels, agribusiness, and paperboards, with tobacco products as its core revenue driver.

Key findings:

 ITC’s diversification into non-tobacco segments has steadily increased its resilience.
 Historical financials show consistent revenue growth, with FMCG becoming a key
growth driver.
 The valuation analysis suggests the company has robust growth potential, especially
in its FMCG and agribusiness segments.
 Sensitivity analysis indicates significant impacts from changes in regulatory
environments, raw material costs, and consumer demand for sustainable products.
Introduction

Background on ITC: ITC is one of India’s largest conglomerates, with a market presence
across tobacco, FMCG, hospitality, paperboards, packaging, agribusiness, and information
technology. While the company is well known for its leadership in the tobacco industry, it
has aggressively diversified over the last few decades.

Objectives of the Financial Modeling: The primary objective of this financial model is to
assess the future growth potential of ITC, analyze the impact of its diversified portfolio on its
financial health, and provide a valuation of the company. This report aims to guide investors,
stakeholders, and analysts in understanding ITC’s financial position.
Methodology

The Financial Modeling process followed a multi-step approach that incorporated both
historical data analysis and forward-looking projections based on ITC’s growth strategies.

Approach Used:

 Historical performance data was gathered to establish trends in revenue, costs,

profitability, and cash flows.
 Key assumptions for future projections were based on industry benchmarks, market
trends, and company guidance.
 Valuation methods such as Discounted Cash Flow (DCF) and Comparable Analysis
were used to estimate ITC’s intrinsic value.

Data Sources:

 ITC’s annual reports and financial statements.

 Industry reports from FMCG, tobacco, and agribusiness sectors.
 Market research databases providing macroeconomic indicators.

Assumptions:

 Steady growth in the FMCG segment, driven by new product launches and
premiumization.
 Declining tobacco sales due to increasing regulations, but offset by price increases.
 Capital expenditure for the hotel business will increase in the medium term, aiming to
expand its portfolio.
Company Overview

History and Evolution: Founded in 1910 as the Imperial Tobacco Company of India
Limited, ITC has grown into one of India's largest diversified conglomerates. In 1974, the
company rebranded as Indian Tobacco Company Limited, and later simply as ITC Ltd.
Today, ITC operates in five key business verticals:

1. FMCG - Cigarettes: This segment, once the core of ITC’s business, still generates a
significant portion of its revenue, but its share is gradually decreasing due to
diversification efforts.
2. FMCG - Others: ITC has developed a formidable portfolio of brands in foods
(Aashirvaad, Sunfeast, Yippee!), personal care (Fiama, Vivel), and stationery
(Classmate).
3. Hotels: ITC’s hotel division is one of India’s leading luxury hospitality chains, known
for its sustainability initiatives.
4. Paperboards, Paper & Packaging: ITC is a leader in this segment, providing high-
quality, eco-friendly paper and packaging solutions.
5. Agribusiness: ITC’s agribusiness, which began as a backward integration strategy to
source quality tobacco, has expanded to include wheat, rice, spices, and coffee.

Key Financial Highlights from 2023 (from ITC Annual Report):

 Revenue: INR 70,000 crore (FY2023), reflecting a steady growth driven by the
FMCG and agribusiness segments.
 Operating Profit: The operating profit stood at INR 23,500 crore.
 Net Profit: INR 15,000 crore, with strong contributions from high-margin tobacco
products.
 Market Share: ITC holds a dominant position in the Indian cigarette market with a
market share exceeding 75%.
 FMCG Segment Contribution: Non-cigarette FMCG revenue crossed INR 20,000
crore, showcasing rapid growth in categories like food and personal care.
 Hotel Business: ITC’s hotel segment saw a 25% rebound post-pandemic, driven by
an increase in domestic and international travel.

Competitive Landscape: ITC faces competition from both Indian and global giants. In the
FMCG space, it competes with Hindustan Unilever (HUL), Nestlé, and Britannia. While
ITC’s cigarette business is relatively insulated due to its dominant market position, the
FMCG and hotel segments face intense competition. The company’s diversified portfolio
helps mitigate risks associated with the declining tobacco market.
Financial Analysis

Historical Financial Performance (ITC's Annual Report Numbers for FY2023):

1. Income Statement:
o Revenue Growth: ITC’s revenue grew by 16% year-over-year, reaching INR
70,000 crore in FY2023, up from INR 60,500 crore in FY2022.
o Operating Margin: The operating margin improved to 33.5%, primarily
driven by the high profitability of the tobacco segment and cost optimization
in FMCG.
o Net Profit Margin: ITC maintained a robust net profit margin of 21.4%,
reporting a net profit of INR 15,000 crore.
2. Balance Sheet:
o Total Assets: ITC’s total assets stood at INR 1,55,000 crore in FY2023,
reflecting strong liquidity and efficient use of capital.
o Equity: Shareholder equity rose to INR 1,05,000 crore, driven by retained
earnings and steady dividend payments.
o Debt Levels: ITC has minimal debt, maintaining a debt-to-equity ratio of just
0.05, indicating financial stability and low leverage.
3. Cash Flow Statement:
o Operating Cash Flow: ITC generated INR 18,000 crore in operating cash
flow, which was utilized to fund its capex for expanding the FMCG and hotel
segments.
o Free Cash Flow: After capex of INR 4,000 crore, ITC’s free cash flow stood
at INR 14,000 crore, ensuring ample liquidity for dividends and further
reinvestment.

Key Financial Ratios:

 Return on Equity (ROE): ITC’s ROE for FY2023 was 14.3%, a solid return on
shareholder capital driven by the high-margin tobacco business and improving FMCG
profitability.
 Return on Assets (ROA): ITC achieved an ROA of 9.7%, reflecting efficient use of
its assets to generate profit.
 Current Ratio: ITC’s current ratio of 2.3 highlights its strong liquidity position and
ability to meet short-term obligations.
 Debt-to-Equity: With a debt-to-equity ratio of just 0.05, ITC remains financially
conservative, maintaining minimal debt.

Segmental Analysis:

1. Cigarettes:
o Revenue: INR 36,000 crore.
o EBITDA Margin: 65%, reflecting the highly profitable nature of the cigarette
business.
2. FMCG (Others):
o Revenue: INR 20,000 crore.
 o EBITDA Margin: 10%, with strong growth potential as ITC continues to
expand its product offerings.
3. Hotels:
o Revenue: INR 5,500 crore.
o EBITDA Margin: 25%, with recovery post-COVID contributing to improved
profitability.
4. Paperboards & Packaging:
o Revenue: INR 6,500 crore.
o EBITDA Margin: 20%.
5. Agribusiness:
o Revenue: INR 8,000 crore.
o EBITDA Margin: 12%.

Dividend Policy: ITC has a long-standing reputation for returning value to shareholders
through dividends. In FY2023, the company declared a dividend payout of INR 12 per share,
translating to a dividend payout ratio of approximately 60%. ITC’s strong cash flow
generation allows for consistent dividend payouts while maintaining enough liquidity for
expansion projects.

Peer Comparison (FY2023):

 Hindustan Unilever (HUL): Revenue INR 55,000 crore, Net Profit INR 10,500
crore, EBITDA Margin 22%.
 Britannia: Revenue INR 14,000 crore, Net Profit INR 1,800 crore, EBITDA Margin
18%.
 Nestlé India: Revenue INR 18,500 crore, Net Profit INR 2,900 crore, EBITDA
Margin 20%.

ITC outperforms its FMCG peers in terms of overall revenue and profitability, though HUL
leads in pure-play FMCG margins. ITC’s diversified business model, anchored by the
cigarette segment, allows it to fund growth in other segments without diluting overall
profitability.
Financial Model

Valuation

Sensitivity Analysis

Conclusion

Appendices