FMCG · investment research
ITC
ITC
Verdict
AVOID
low confidence · 3-5 years
Composite score
34/100
Weighted across all eight pillars
Business quality
36/100
Moat, returns, balance sheet, cash, management
Valuation score
1/100
At 47.3x against a sector median of 20.0x, the price embeds roughly 32% earnings growth. Anything less has to come out of the multiple.
Decision intelligence
Every conclusion states what would make it wrong
WHAT
Avoid for now — the business or governance risk outweighs the opportunity.
WHY
- • Valuation scores 1/100 (stable) — At 47.3x against a sector median of 20.0x, the price embeds roughly 32% earnings growth. Anything less has to come out of the multiple.
- • Profitability & returns scores 3/100 (deteriorating) — ROCE was 6.4% a year ago. Sustained ROCE above the cost of capital is what compounds value.
- • Industry & macro scores 88/100 (improving) — FMCG (India) demand is improving.
- • Growth quality scores 17/100 (deteriorating) — Top-line compounding over the reported history.
WHERE
FMCG · Large cap · position sized to at most 0% of an equity portfolio.
WHEN
Re-run this analysis after the next quarterly result.
WHAT IF WRONG
- • The thesis is wrong if ROCE falls below 6% or cash conversion stays under 70% for two straight quarters.
- • Valuation support fails below ₹114 of fair value — a drawdown to that level is a re-underwrite, not automatically a buy.
- • Watched risk: Leverage — Debt is 5.8x EBITDA.
WHAT NEXT
- • Read the latest quarterly cash-flow statement alongside the P&L.
- • Check GDP growth — it moves the earnings base independently of execution.
- • Compare against the sector peers listed below before sizing anything.
ITC is a competitively exposed fmcg business compounding revenue at 7.0% and profit at -14.0%, earning 5.5% on capital. Quality scores 36/100 and valuation 1/100 at 47.3x. The decision is therefore avoid with low confidence — this is analysis for learning, not investment advice.
What does this business actually do?
Business understanding before ratios
ITC operates in the Indian fmcg sector with a large-cap footprint and a listed market value of about ₹548k Cr.
Revenue is earned across 4 reported segments; profitability is driven by realisations, mix and operating leverage rather than one-off items.
Revenue drivers
- • Volume growth in the core segment
- • Realisation / pricing power
- • Mix shift toward higher-margin lines
- • Capacity utilisation
Cost drivers
- • Raw material and input costs
- • Employee cost inflation
- • Interest cost on borrowings
- • Distribution and marketing spend
Moat · 54/100
Brand & distribution
Shelf presence and recall let the company hold price through input cost cycles.
Segment mix
Growth 19.1% · margin 11.2% — Fastest growing part of the mix — watch whether margins hold as it scales.
Growth -6% · margin 31.2% — Flat to declining; drags the consolidated growth rate.
Growth -4.2% · margin 31.7% — Flat to declining; drags the consolidated growth rate.
Growth 9% · margin 19.7% — Growing broadly in line with the overall business.
Analysis pillars
Score, trend and the drivers behind each — no bare numbers
Business & moat
46/100Trend: deteriorating · weight 14%
- MoatBrand & distribution
Shelf presence and recall let the company hold price through input cost cycles.
- Segment concentrationHome care is 47.4% of revenue
Revenue is spread across segments, which softens single-market shocks.
- EBITDA margin15.0%
Margin moved from 24.0% to 15.0% year on year.
Profitability & returns
3/100Trend: deteriorating · weight 16%
- ROCE5.5%
ROCE was 6.4% a year ago. Sustained ROCE above the cost of capital is what compounds value.
- ROE6.8%
Return on equity after leverage — read alongside debt levels.
- Net margin7.5%
Share of every rupee of revenue that reaches reported profit.
Growth quality
17/100Trend: deteriorating · weight 15%
- Revenue CAGR (4y)7.0%
Top-line compounding over the reported history.
- Profit CAGR (4y)-14.0%
Profit lags revenue, so growth is being bought with margin.
- Growth sourceCapex-led (organic)
Capex is 13.0% of revenue this year.
Balance sheet
17/100Trend: improving · weight 12%
- Debt / EBITDA5.83x
Leverage is high enough that a demand shock becomes a solvency question.
- Debt / equity0.70x
Capital structure relative to shareholder funds.
- Working capital91 days
Long cycle: each rupee of growth locks up more cash.
Cash conversion
31/100Trend: stable · weight 13%
- OCF / PAT71%
Reported profit is backed by operating cash.
- Free cash flow₹-8,649 Cr
Cash left after maintaining and expanding the asset base.
Management & governance
82/100Trend: improving · weight 14%
- Guidance delivery85% of last 8 quarters
Whether management historically delivered what it promised.
- Promoter holding41.6% (+1.54 y/y)
Promoter ownership is stable or rising.
- PledgeNo pledge
No pledge disclosed in the sample data.
- Institutional flowFII +0.15 · DII +2.87
Direction of institutional ownership over the last year.
- Capital allocationMost operating cash is reinvested into the core …
Most operating cash is reinvested into the core business.
Industry & macro
88/100Trend: improving · weight 8%
- Demand trendimproving
FMCG (India) demand is improving.
- StructureConsolidated
Consolidated — a few large players hold most of the profit pool.
- Competitive intensitylow
How hard it is to keep pricing and share.
- Macro driversGDP growth, Inflation, Interest rates
Variables that move the earnings base regardless of company execution.
Valuation
1/100Trend: stable · weight 8%
- P/E vs sector47.3x vs 20.0x
At 47.3x against a sector median of 20.0x, the price embeds roughly 32% earnings growth. Anything less has to come out of the multiple.
- Growth-adjusted47.30 (PE/growth)
Below ~1.5 the multiple is supported by growth; above ~2.5 it depends on the market staying optimistic.
- FCF yield-1.58%
Cash return on the current market value, before any growth.
Financial history
Profit, cash and returns over five reported years
| Year | Revenue | EBITDA | PAT | OCF | FCF | ROCE |
|---|---|---|---|---|---|---|
| FY2022 | ₹85,893 Cr | ₹29,204 Cr | ₹15,478 Cr | ₹9,751 Cr | ₹-1,415 Cr | 4.5% |
| FY2023 | ₹92,593 Cr | ₹18,519 Cr | ₹11,667 Cr | ₹7,584 Cr | ₹-2,601 Cr | 5.5% |
| FY2024 | ₹99,293 Cr | ₹24,823 Cr | ₹10,922 Cr | ₹7,318 Cr | ₹1,360 Cr | 6.8% |
| FY2025 | ₹1.06 L Cr | ₹25,438 Cr | ₹10,175 Cr | ₹7,021 Cr | ₹-6,758 Cr | 6.4% |
| FY2026 | ₹1.13 L Cr | ₹16,904 Cr | ₹8,452 Cr | ₹6,001 Cr | ₹-8,649 Cr | 5.5% |
- ⚠ Working capital cycle is long; growth consumes cash.
Ownership & management
Who owns it, and have they delivered?
Promoter
41.6%
+1.54 y/y
Pledge
None
No disclosed pledge
FII
8.3%
+0.15 y/y
DII
8.3%
+2.87 y/y
Guidance delivered in 85% of the last eight quarters; average leadership tenure 6 years.
Most operating cash is reinvested into the core business.
No governance flags raised by the sample dataset.
Industry & macro context
FMCG (India)
Demand trend
improving
Cyclicality
low
Competition
low
Regulatory pressure
low
Consolidated — a few large players hold most of the profit pool.
Macro drivers: GDP growth · Inflation · Interest rates
Valuation
expensive versus the sector
P/E
47.3x
Sector median P/E
20.0x
P/B
11.18x
Earnings yield
2.11%
FCF yield
-1.58%
PE / growth
47.3
Estimated fair-value band ₹114 – ₹146 , built on FY2026 EPS of ₹6.8. Gap to the current price: -70.3%. Ranges are a modelling output, not a target price.
At 47.3x against a sector median of 20.0x, the price embeds roughly 32% earnings growth. Anything less has to come out of the multiple.
Risk register
What can break the thesis, and how it is monitored
- Leveragehigh
Debt is 5.8x EBITDA.
Monitor: Quarterly gross debt and interest coverage.
- Valuation riskhigh
The multiple already discounts a lot of future growth.
Monitor: Any quarter where growth slows below the implied rate.
- Accounting qualitymedium
Working capital cycle is long; growth consumes cash.
Monitor: Cash-flow statement versus P&L each quarter.
Ongoing thesis monitoring
The thesis is a living position, not a one-time verdict
| Metric | Currently | Thesis holds if | Thesis breaks if |
|---|---|---|---|
| ROCE | 5.5% | stays above 6% | falls for two consecutive years |
| Cash conversion | 71% | stays above 80% | drops below 70% while revenue grows |
| Revenue growth | 7.0% CAGR | tracks the 32% priced in | slows for two quarters with no margin offset |
| Promoter holding | 41.6% | stable or rising | falls sharply or fresh pledge appears |
Peers in the same sector
Compare before sizing anything
Data quality 58/100
Stated openly, as required by the product principles
- • Fundamentals in this build come from a deterministic sample dataset, not licensed exchange filings.
- • Segment, ownership and management figures are illustrative and must be verified against annual reports.
- • Educational analysis only — not a recommendation to buy or sell any security.
- • Accounting flags reduce the reliability of the reported profit base.