Where Will ITC Share Price Be in 3 Years?
Originally a cigarette maker, ITC has grown into one of India’s most diverse companies, with holdings in agribusiness, paperboard, hotels, and FMCG.
Over the years, the business has successfully balanced innovation and legacy, propelling development in several industries.
ITC’s recent plan to demerge its hotel segment garnered media attention. This action simplifies operations and unlocks value in the company’s hospitality industry, marking a turning point for the enterprise.
Although the precise date is still uncertain, the recently established company, ITC Hotels Ltd., is scheduled to list on the stock markets in the upcoming weeks.
After the demerger, ITC’s stockholders will own 60% of the new business, while the parent company will keep the remaining part.
In the hospitality industry, which has recovered well from the epidemic, the move to split off the hotel company is anticipated to improve development potential and concentration.
Long-standing investor demands to split ITC’s fast-growing FMCG business from its hotel operations—which many think would result in substantial value for shareholders—are also addressed by the decision.
The market is keeping a close eye on both companies as they prepare to expand independently in their new arrangements.
A Wild Ride
Over the past few years, ITC’s stock has fluctuated in value.
It underperformed in 2021, lagging behind the overall market and turning into a meme stock. It only increased by 30% between April 2020 and January 2021, whilst the BSE Sensex increased by 133%.
ESG-focused international investors were wary, and the company failed to gain traction despite consistent profits growth due to worries over its tobacco business and the lack of progress in spinning off its FMCG sector.
ITC saw a robust rebound in 2022. The stock outperformed the Sensex, which fell 22% over the same time period, rising 60% by November and hitting an all-time high of Rs 392 in March 2023 from about Rs 200 in January.
This is also evident in the company’s success, which was exceptionally strong from 2022 to 2023.
Economic Well-being
Between 2020 and 2024, the net profit increased at a compound annual growth rate (CAGR) of 10.1% while sales increased at a 5-year CAGR of 7%.
Over a five-year period, the Return on Equity and the Return on Capital Employed have also increased, averaging 26.3% and 34.3%, respectively.
The company’s outstanding profitability and high-return FMCG industry have allowed it to have a debt-free balance sheet.
ITC has been able to continuously produce strong cash flows because of its financial stability. As a consequence, the business can consistently pay out enticing dividends to its stockholders.
As a matter of fact, ITC has paid dividends continuously since 1994. ITC’s average dividend yield and payment over the previous five years have been 4% and 90%, respectively, which is quite excellent. This track record is noteworthy in a sector where steady rewards are uncommon.
ITC announced an 80% payment in FY24. ITC stands out among dividend-paying companies due to its consistent ability to sustain a high payment year after year.
Recent Results
Still Recovering but Running Into Obstacles
ITC had a few setbacks in FY24 despite its strong financial results.
The stock started to underperform the overall market index in 2024. The hotel segment only contributed 3.8% of ITC’s overall sales, so even though the hotel industry reported a fantastic 15% year-over-year revenue gain, its influence was negligible.
The larger obstacle was ITC’s FMCG division, which generates 65.5% of total income, of which 39% comes from cigarettes alone.
The company’s development was hindered by slowing demand in its key industry, and investor concerns were heightened by challenges experienced by the paperboard and agricultural businesses.
In light of more recent events, ITC’s Q2FY25 results demonstrate consistent growth in a number of important categories, while certain obstacles being present.
Premium personal care goods, snacks, and essentials drove the FMCG-Others segment’s moderate 5.4% year-over-year (YoY) rise.
However, a large base and declining paper prices presented challenges for notebooks.
Although growing input prices slowed profit growth, premiumization and market interventions helped cigarettes maintain their steady trend with a 7.3% YoY sales gain.
Strong demand in retail, F&B, and weddings allowed the hotels category to produce outstanding profits.
Strong exports of leaf tobacco and value-added agri-products like coffee and spices propelled the agribusiness segment’s 47% YoY revenue gain.
In the meanwhile, low-priced imports and rising wood costs put pressure on the Paperboards, Paper, and Packaging sector, which managed only a 2.1% YoY rise.
The path ahead is paved with obstacles and resiliency.
Demand in the cigarette industry is anticipated to continue to be strong due to premiumization trends and the company’s capacity to handle regulatory demands.
The increasing cost of leaf tobacco may limit margin increase, which might limit profitability in the short to medium term, even though volume growth is probably going to continue.
However, ITC’s dominant market position offers a good basis for long-term expansion in this sector.
How soon raw material prices stabilize will determine FMCG’s recovery trajectory. The industry is experiencing short-term margin difficulties, especially due to increased pricing for commodities like edible oils, wheat, and others.
Longer term, nevertheless, ITC is well-positioned to profit from India’s expanding middle class and changing consumption trends thanks to its diverse FMCG portfolio, which includes premium snacks, staples, and personal care products.
It is anticipated that margins would increase when commodity prices stabilize, increasing profitability.
The growing demand for value-added goods like tobacco, coffee, and spices throughout the world is fueling the agriculture part of ITC’s significant long-term development potential.
However, there may be dangers from shifting trade regulations and currency volatility.
Higher raw material prices and competition from low-priced imports are putting pressure on profits in the Paperboards & Packaging segment. Depending on input prices and the dynamics of the global supply chain, a full recovery might take some time.
Hotels Segment Strategy: Seeking Rapid Growth
The six brands that ITC operates—ITC Hotels, Fortune, Mementos, Storii, WelcomHeritage, and Welcomhotel—offer a variety of lodging options, ranging from boutique and luxury lodging to business and historical lodging.
With 13,000 rooms, ITC is a major participant in a market dominated by industry titans like the Taj, owned by the Tata Group, which has over 350 hotels, including 120 in the works.
Hotelivate, a hospitality consulting firm, reports that Marriott has 24,000 rooms, followed by Taj (22,000) and Radisson (14,000).
With an asset-light approach, ITC Hotels, a distinct, debt-free company, is speeding up its growth goals and aims to have 200 hotels with more than 18,000 rooms by 2030. Both the luxury and budget markets continue to be the major focus, while food and drink continue to be important sources of income.
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