If You'd Invested Rs 10,000 in ITC 10 Years Ago, Here's How Much You'd Have Today

ITC vs Sensex

Had you invested Rs 10,000 in ITC ten years ago, your investment would now be worth approximately Rs 18,212, reflecting a growth of 82.1% over the period.

In January 2015, ITC's share price stood at Rs 241.6, and today, it has risen to Rs 435.3, marking a steady yet modest increase in value. While this is a respectable return, it still lags behind broader market performance.

In contrast, had you invested that same Rs 10,000 in the BSE Sensex, your investment would have grown to Rs 25,497, reflecting a higher growth of 154.9%.

In comparison, the Sensex has seen impressive growth during the same period, increasing from 29,559 to 75,901 as of 28 January 2024.

The stock has witnessed a turnaround but it has still underperformed the benchmark indices.

What Caused the Underperformance?

Over the past decade, ITC's stock has faced significant challenges, causing it to underperform relative to benchmark indices.

In 2015, a sharp 25% excise tax hike on 65 mm cigarettes and a 15% increase on other categories proposed by Finance Minister Arun Jaitley caused a drop in demand for cigarettes, significantly impacting revenue.

This move set the tone for a prolonged period of stock underperformance, as the cigarette business, which is a core revenue driver for ITC, was directly impacted by these regulatory changes.

In 2021, ITC struggled to gain traction, becoming a meme stock. Between April 2020 and January 2021, while the BSE Sensex surged by 133%, ITC's stock rose only 30%.

Despite steady earnings growth, concerns over its reliance on the cigarette business and the lack of significant progress in spinning off its FMCG division kept investors on edge.

Additionally, ESG-focused foreign funds remained cautious about investing in ITC, further hindering stock performance.

The challenges continued into 2022 when unprecedented inflationary pressures hit the FMCG sector. ITC acknowledged in its annual report that inflationary headwinds and a weak demand environment, particularly in rural markets, posed challenges.

This was compounded by high inflation eating into household budgets and a high base effect in categories like staples and convenience foods.

Additionally, the company faced risks related to geopolitical tensions, the resurgence of COVID-19 in certain regions, and supply chain disruptions, which dampened prospects.

In FY24, the hotel segment, which posted a 15% year-on-year revenue growth, contributed minimally to the company's overall revenue (only 3.8%).

The real challenge came from its FMCG division, which accounts for 65.5% of ITC's total revenue, with cigarettes alone contributing 39%. Slowing demand in this division, along with challenges in its agribusiness and paperboard segments, added to investor concerns and further weighed down the stock's performance.

These multiple factors over the past decade have contributed to ITC's underperformance relative to the broader market indices.

A Close Look at ITC's Financials

For the September 2024 quarter, ITC reported 15.6% YoY rise in revenue to Rs 222,818.9 million (m).

Meanwhile the net profit grew 1.9% to Rs 49,928.7 m during the quarter, impacted by the profitability of hotels, and the paperboards and packaging businesses.

Over the years, ITC's net sales have shown fluctuations. In FY20, sales saw a slight uptick to Rs 474,146 m but declined to Rs 453,904 m in FY21 due to the impact of the COVID-19 pandemic.

The company rebounded strongly in FY22 with a 23.7% increase, reaching Rs 561,312 m, and continued this momentum in FY23 with a 16.4% rise to Rs 653,555 m.

However, in FY24, sales saw a marginal dip of 0.7%, settling at Rs 649,215 m.

Net profit followed a similar trajectory, falling to Rs 133,829 m in FY21 before making a strong recovery to Rs 207,514 m in FY24.

Despite short-term fluctuations, ITC's net profit margin improved over time, dipping to 27.6% in FY22 before rising to 32% in FY24, reflecting better operational efficiency and resilience across its businesses.

Financial Snapshot (FY20-24)

From FY20-24 ITC's revenue and net profit has grown at a compound annual growth rate (CAGR) of 6.7% and 10.1% respectively.

It has been delivering strong returns, with the RoE and RoCE averaging a healthy 25.9% and 34.3%, respectively.

Recent Development

# ITC Hotels Listing

ITC Hotels is all set to make its stock market debut today, on 29 January, with listings on both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

This follows ITC's decision to spin off its hotel business into a separate publicly traded entity, a move aimed at unlocking greater value for shareholders.

The demerger, finalized last year, comes with a share allocation ratio of 1:10-meaning investors holding 10 ITC shares as of 6 January 2025, will receive one ITC Hotels share.

Under this structure, around 60% of ITC Hotels' equity will be directly held by ITC shareholders in proportion to their existing stake, while ITC will retain a 40% shareholding.

To determine the market valuation of ITC Hotels, the NSE and BSE conducted a special trading session on 6 January, employing a price discovery mechanism.

As part of the demerger, various hospitality subsidiaries, including Fortune Park Hotels Ltd, Landbase India Ltd, Srinivasa Resorts Ltd, Gujarat Hotels Ltd, and others, will be transferred under ITC Hotels' umbrella, solidifying its position as an independent entity in the hospitality sector.

What Next?

Going forward, ITC Ltd. is expanding its footprint in Bengal through significant investments across multiple sectors, including artificial intelligence (AI), hospitality, manufacturing, and agriculture.

As part of this strategy, the company is establishing a global AI hub for ITC Infotech in New Town while also planning to double its hotel portfolio in the state.

With an investment commitment of approximately Rs 18 billion (bn) over the next two to three years, ITC will enhance its presence in Bengal, having already invested Rs 75 bn in the region over the past seven to eight years.

Additionally, the company has introduced ITC Integrated Business Services Ltd., based in Kolkata, to streamline back-end operations across its businesses.

At its Panchla plant, ITC is increasing production capacity by expanding the number of lines from five to eight while also commencing operations at a newly established personal care products facility. Moreover, the company is developing an integrated logistics hub in Panchla to enhance supply chain capabilities.

In the agricultural sector, ITC is engaging with 1.7 lakh farmers across various agri-value chains, including milk, potato, and wheat.

To further its commitment, the company is introducing ITCMAARS, a "phygital" ecosystem aimed at supporting five lakh farmers through 100 Farmer Producer Organizations.

These investments underscore ITC's commitment to strengthening its operations in Bengal and contributing to the state's economic and industrial growth.

Conclusion

The FMCG sector remains strong, supported by rising disposable incomes, a growing young population, and increasing rural consumption.

A robust rural economy, bolstered by a favourable monsoon, is expected to drive demand, along with improved crop yields, and higher government spending on infrastructure and rural schemes.

In urban markets, FMCG companies are leveraging premiumization strategies to enhance value growth, as consumers show a preference for higher-quality products.

The rapid expansion of quick commerce further reflects the growing willingness of urban buyers to spend more on premium offerings.

The upcoming Union Budget is anticipated to introduce measures aimed at stimulating consumption, further benefiting the sector. These factors collectively set a strong foundation for ITC's growth trajectory in 2025.

Investors should evaluate the company's fundamentals, corporate governance, and valuations of the stock as key factors when conducting due diligence before making investment decisions.

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