When it comes to wealth creation stories from stock markets the most common ones, we hear time and again are those of Wipro, MRF, TCS, Eicher Motors, Maruti Suzuki, and Page Industries.
These stories talk about how an investment of just Rs. 10,000 turned in crores, thereby creating huge fortunes for patient investors who held on to them despite several market ups and downs.
Call it ignorance or lack of knowledge, the stock of ITC is one such stock that has perhaps not received the kind of attention, it actually deserves in these wealth creation stories.
Before we proceed with the answer to the question “Is it worth investing in ITC share for the long term?” let’s take a look at its history and how it has created a lot of wealth for patient long-term investors.
ITC\’s history of wealth creation
Twenty years back on 1st Feb 2001, the closing price of ITC stock was Rs. 12. Today the stock is trading at around Rs. 220 levels. So Rs. 10,000 invested in the stock of ITC on 1st Feb 2001 would be worth Rs. 1,83,000 today.
What? Just Rs. 1,83, 000…. Where is the wealth creation story like Wipro, MRF, TCS, Eicher Motors, Maruti Suzuki, and Page Industries which turned a few thousand into crores?
Wait there is more than what meets the eye.
Let’s take an example of an investor who had purchased 100 shares of ITC in 2001.
After a 1:2 bonus issue in June 2006, the number of shares would have gone up to 150. In Sep 2006 post a 10:1 stock split, the investor holding 150 shares of ITC would have 1500 shares in his account.
Post a 1:1 bonus issue in June 2010, the number of shares would have gone up to 3000. In Aug 2010 after a 2:1 stock split, the investor holding 3000 shares of ITC would have 4500 shares in his account.
After a 1:2 bonus issue in May 2016, the number of shares in his demat account would have increased to 6750. Again, there was a 3:2 stock split in Jul 2016. As of result, the quantity of ITC shares held by the investor swelled to 10,125.
At the current price of Rs. 220 the total value of the investment would be Rs. 22,27,500. Here we have used an example of just 100 shares purchased initially. Imagine the kind of gains the investor would have made if the quantity was higher.
Now that we have seen the ITC stock’s history of wealth creation, let’s look at the most important questions a lot of investors are asking:
Is ITC a multibagger stock?
Is it worth investing in ITC stock for the long term?
Is ITC the best FMCG stock for investment?
To know the answer let’s take a look at the stock of ITC from a fundamental perspective.
Diversified business
Cigarettes
ITC is the undisputed market leader in this segment and offers over 14 brands. Some of its popular brands include Classic, Wills, and Scissors. The company also offers a hand-rolled cigars under the brand name Armenteros, in the domestic market which is sold exclusively at select hotels and fine dining restaurants.
FMCG
ITC is a leading player in the FMCG segment in India. Some of ITC\’s brands with significant market share and huge popularity among consumers include Aashirvaad, Sunfeast, Bingo!, YiPPee!, Candyman, mint-o, and Kitchens of India in the Branded Packaged Foods space.
Personal care products segment
In the Personal Care Products segment, ITC’s popular brands include Essenza Di Wills, Fiama, Vivel, and Superia in the; Classmate and Paperkraft in Education & Stationery products;
Dhoop and agarbatti
Dhoop and agarbatti marketed by ITC under the brand name Mangaldeep are the best-selling and second best-selling brands in their respective segments in the country.
Education and stationery
In the education and stationery business segment, ITC offers products under 2 brands, named Paperkraft and Classmate. While its Paperkraft brand caters to the premium segment, the Classmate brand offers value for money products such as ball pens, gel pens, roller pens, mechanical pencils, geometry boxes, erasers, sharpeners, rulers, crayons, crayons, sketch pens, and oil pastels.
Safety matches
ITC\’s range of products in this segment with different product features caters to different consumer segments. Some of ITC’s popular brands in this segment include Aim, Ship, and Homelite.
Paperboards and Specialty Papers
ITC\’s Paperboards and Specialty Papers Business caters to diverse industry requirements – from cigarette papers and Components to cartons for FMCG, electrical insulation papers, writing and printing papers, etc. The company’s product offerings in this segment include 100% virgin, food-grade boards, and 100% recycled boards.
Hotels
One of the fastest-growing hospitality chains in India, ITC Hotels operates luxury hotel properties at strategic business and leisure locations across India under four brands such as Welcomhotels, Fortune Hotels, WelcomHeritage, and ITC Hotels.
Packaging & printing business
ITC\’s Packaging & Printing Business offers value-added packaging solutions for the food & beverage, personal products, cigarette, liquor, and consumer goods industries.
Some of ITC’s clients in this segment include MNC’s like Nokia, Colgate Palmolive, British American Tobacco, Philip Morris International, UB Group, Tata Tetley, Tata Tea, Reckitt Benckiser, etc.
Information Technology
ITC Infotech is a leading global technology services and solutions provider, which provides technology solutions and services to diverse industries such as Banking & Financial Services, Healthcare, Manufacturing, Consumer Goods, Travel, and Hospitality.
Agri-business
ITC\’s agri-business is one of the largest integrated agri-business enterprises in the country engaged in domestic trading of agro products as well as exports of agricultural products such as food grains, marine products, processed fruits & coffee. Its export market includes Western Europe, North Africa, West Asia, Japan, North America, Middle East, Russia, Vietnam, etc.
Consistent dividend payouts
ITC has a good dividend track report and has consistently declared dividends for the last 20 years. For the year ending March 2020, ITC has declared a dividend of Rs 10.15 per share. Considering the current share price of Rs 217.30 this amounts to a dividend yield of 4.67%.
Zero debt
ITC is a debt-free company. Debt levels of a company are important criteria that every investor should check before investing in its stock as high debt means a significant portion of the profits generated by the company would be used for servicing its debt. As a result, a debt-laden company would not be in a position for expansion of capacity or reward its shareholders in the form of dividends.
Aggressive new product launches
ITC has aggressively launched 70 new products in the last six months. Some of these new products launched especially in the sanitizers & disinfectant segments and in the packed food category are an extension of existing brands such as Savlon and Ashirward.
Introduction of new delivery models
To avoid disruption of delivery during the lockdown, ITC introduced new delivery models of its products to consumers by tying up with diverse companies such as Dominos, Swiggy, Zomato, etc. The company also launched an ‘ITC Store on Wheels’ for direct reach to consumers in residential areas, and increased availability in e-Commerce platforms.
Huge brand recall value
Many of ITC’s product offerings have a huge brand recall value and helped the company to create a loyal customer base, thus generating repeat orders.
ITC’s Aashirvaad, Bingo, and Sunfeast brands rank number one in the branded atta, bridges segment of snack foods, and cream biscuits segment respectively.
ITC’s Engage brand ranks number in deodorants in the women’s segment while Yipee ranks as number two in the noodles segment.
Cutting edge R&D
ITC’s state-of-the-art R&D Centre in Bengaluru has helped the company in launching many first-to-the-market innovative products for consumers. Even during the pandemic, the company’s R&D responded quickly to consumer needs for hygiene, health, and immunity to launch a range of innovative and superior products in record time such as the Savlon Surface Disinfectant Spray, Nimwash vegetable and fruit cleaner, B Natural+ juices with immunity offerings, etc.
So is it worth investing in ITC share for the long term?
ITC is one of the largest diversified players in India present in businesses such as cigarettes, FMCG, hotels, specialty papers, and the market leader in the domestic cigarette and packaging & printing business. The company also operates the second-largest hotel chain in India in terms of revenue and profitability. The company has an extensive and well-established distribution network, which it is effectively utilizing to scale-up its consumer goods business.
The Covid-19 pandemic and associated lockdowns affected the business of ITC’s cigarettes and hotels adversely in the year 2020. However, the company’s FMCG business witnessed strong growth in branded foods segment riding on the demand for atta, biscuits, noodles & sanitizers & disinfectant segments.
Increasing taxes and regulatory norms in the cigarette industry in India have affected ITC profit margins adversely over the last few years. Hence ITC has been slowly ITC de-risking its business model by reducing dependence on its core cigarette business and focussing on scaling up its FMCG and hospitality businesses.
The company has quickly rebound from the disruption caused by lockdown and key businesses are operating at normal levels. Going further, significant growth in the non-cigarette business, higher purchasing power among consumers, and a preference for branded packaged foods are some of the key growth drivers for the company in the medium to long term.
So overall, ITC looks like a good share for investment from a long term perspective.
However, there are some threats also which an investor should keep in mind while investing like a slowdown in the economy, further hike in taxes on cigarettes in the upcoming months and competition from smuggled illegal cigarettes.
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