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ITC Ltd. – Discounted Cash Flow Valuation
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ITC is an Indian multinational company. It was founded in 1910 on August 24, in Calcutta with the business concept of selling cigarettes and tobacco under the name of Imperial Tobacco Company of India. After a few name changes, they finally went with the name of ITC without any acronyms.
At first, it was started as a cigarette and tobacco company but eventually, ITC started to diversify its production into multiple markets. It diversified business into FMCGs, the Hotel industry, agribusinesses, paperboards and specialty papers, information technology, and packaging.
ITC brands are known as Brands of India, Pride of India. ITC creates 6 million sustainable livelihoods by contributing to the 3 sectors of the Indian economy – manufacturing, agriculture & services. ITC Ltd has been stepping up its digital marketing game and expanding its availability in the digital industry. It has a market share of 12% in the FMCG sector.
Mission: To enhance the wealth generating capability of the enterprise in a globalising environment, delivering superior and sustainable stakeholder value.
Vision: Sustain ITCs position as one of India s most valuable corporations through world class performance, creating growing value for the Indian economy and the Company s stakeholders
Product segment of ITC
Now ITC is recognized as a company that has the most valuable brands in the world. Here are some ITC items that have the most impact on the company –
- FMCG – Some of the food brands are Aashirvaad, Bingo! Sunfeast, Fabelle, Sunbean, Yippee!, Farmland, B Natural, ITC Master Chef, Kitchens of India, mint-o, GumOn, and Candyman. Some of the personal care item brands are Essenza Di Wills, Dermafique, Fiama, Vivel, Engage, Superia, Nimyle, Neemwash, Savlon, Shower to Shower, and Charmis.
- Stationary – ITC sells education and stationery items under the brand’s Classmate and Papercraft.
- Apparel – ITC sells lifestyle clothing under the brand name of Wills lifestyle. It provides its customers with the best quality products.
- Hotels – In 1975 the journey of their hotel industry started. ITC has the second largest hotel chain and brands such as ITC One, Towers, Eva, and the Executive Club.
- Agribusiness – India’s 2nd largest Agri product exporter is the ITC agribusiness.
- Paperboard and packaging – It was first started with packaging and printing in 1925. ITC has eco-friendly and high-quality paperboards and special papers. ITC provides services regarding printing and packaging.
- ITC infotech – ITC has a global technology service and solutions provider brand as ITC infotech.
ITC provides a range of goods and services to customers between ages 5 to 60. ITC caters to the demands of many businesses in the B2B market, and also in ITC Hotels and ITC Infotech in the IT and hospitality sectors.
As a result, ITC’s marketing strategy has used a variety of techniques to grow its market share.[/vc_column_text][vc_single_image image=”72251″ img_size=”full” alignment=”center” css=”.vc_custom_1670656026885{margin-top: 40px !important;margin-right: 40px !important;margin-bottom: 40px !important;margin-left: 40px !important;border-top-width: 1px !important;border-right-width: 1px !important;border-bottom-width: 1px !important;border-left-width: 1px !important;border-left-color: #000000 !important;border-left-style: solid !important;border-right-color: #000000 !important;border-right-style: solid !important;border-top-color: #000000 !important;border-top-style: solid !important;border-bottom-color: #000000 !important;border-bottom-style: solid !important;border-radius: 1px !important;}”][vc_column_text]
Discounted Cash Flow Valuation
Starting with the weighted average cost of capital, we have selected 7.5% as the base case WACC. The logic and calculation for the same are in the image below[/vc_column_text][vc_single_image image=”72268″ img_size=”large” alignment=”center” css=”.vc_custom_1670751913867{margin-top: 40px !important;margin-right: 40px !important;margin-bottom: 40px !important;margin-left: 40px !important;border-top-width: 1px !important;border-right-width: 1px !important;border-bottom-width: 1px !important;border-left-width: 1px !important;border-left-color: #000000 !important;border-left-style: solid !important;border-right-color: #000000 !important;border-right-style: solid !important;border-top-color: #000000 !important;border-top-style: solid !important;border-bottom-color: #000000 !important;border-bottom-style: solid !important;border-radius: 1px !important;}”][vc_column_text]Excerpts from the models showing the revenue and free cash flow projections are given below.[/vc_column_text][vc_single_image image=”72269″ img_size=”large” alignment=”center” css=”.vc_custom_1670751928036{margin-top: 40px !important;margin-right: 40px !important;margin-bottom: 40px !important;margin-left: 40px !important;border-top-width: 1px !important;border-right-width: 1px !important;border-bottom-width: 1px !important;border-left-width: 1px !important;border-left-color: #000000 !important;border-left-style: solid !important;border-right-color: #000000 !important;border-right-style: solid !important;border-top-color: #000000 !important;border-top-style: solid !important;border-bottom-color: #000000 !important;border-bottom-style: solid !important;border-radius: 1px !important;}”][vc_single_image image=”72273″ img_size=”large” alignment=”center” css=”.vc_custom_1670752969803{margin-top: 40px !important;margin-right: 40px !important;margin-bottom: 40px !important;margin-left: 40px !important;border-top-width: 1px !important;border-right-width: 1px !important;border-bottom-width: 1px !important;border-left-width: 1px !important;border-left-color: #000000 !important;border-left-style: solid !important;border-right-color: #000000 !important;border-right-style: solid !important;border-top-color: #000000 !important;border-top-style: solid !important;border-bottom-color: #000000 !important;border-bottom-style: solid !important;border-radius: 1px !important;}”][vc_column_text]Finally, after putting it all together, our model gives out a fair value of Rs. 417 on equity shares of ITC Ltd, which translates to a positive return of 22% from today’s stock price. Details for the same can be found in the image below.[/vc_column_text][vc_single_image image=”72270″ img_size=”large” alignment=”center” css=”.vc_custom_1670752072546{margin-top: 40px !important;margin-right: 40px !important;margin-bottom: 40px !important;margin-left: 40px !important;border-top-width: 1px !important;border-right-width: 1px !important;border-bottom-width: 1px !important;border-left-width: 1px !important;border-left-color: #000000 !important;border-left-style: solid !important;border-right-color: #000000 !important;border-right-style: solid !important;border-top-color: #000000 !important;border-top-style: solid !important;border-bottom-color: #000000 !important;border-bottom-style: solid !important;border-radius: 1px !important;}”][vc_column_text]The assumptions in the models are based on the most recent guidance given by the ITC Ltd.’s management con-call. These assumptions are subject to change as more info comes to fore.[/vc_column_text][vc_zigzag][vc_column_text]Disclosure:
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