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ITC Ltd : Safe Bet For Long Term With Decent Returns

BY: Vivek SHARMA | Category: Finance | Submitted: 2011-09-20 12:42:05
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Article Summary: "The reasons why you should buy ITC shares for long term investment.."


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The name ITC needs no introduction. ITC today is a leading player in FMCG segment in India, has the second largest Hotel chain, is a dominant and largest entity in the Indian Paperboard and Packaging industry and has made a mark in Agri-business player. Beyond, its traditional business areas it also has wholly owned subsidiary in IT sector, which is one of India's fastest growing Information Technology companies in the mid-tier segment. ITC is also present in life style retailing.

The strength of company lies in its robust corporate strategy designed to unleash multiple drivers of growth. Its time tested core competencies, namely unmatched distribution reach; superior brand building, effective supply chain management and acknowledged skills in hoteliering have provided ITC the springboard to create new epicenters of growth

Future Prospects

The business areas in which ITC operates have significant growth prospects. The future growth comes from the fact is that FMCG business is not impacted by business cycles significantly. Over the years ITC has diversified into areas which have significant growth prospects like hotels, paper and packaging, agricultural sector etc.ITC has very limited competition in several areas like its traditional business of cigarettes. The share price movement of stock tells in all. The stock has given a compounded return of around 21% in last 10 years. It is a low beta stock and that is why has limited down side potential. The stock is as good as risk free investment and is a safe bet for investors looking for long term investment.

Year High Low Closing
(as on March 31st)
2001 32.07 16.33 27.15
2002 29.63 19.17 23.22
2003 24.17 18.5 20.98
2004 39.51 20.63 34.71
2005 47.23 24.4 44.79
2006 100 44.07 97.48
2007 106.35 70.08 75.2
2008 119.7 73.08 103.18
2009 116.2 66.03 92.4
2010 136.35 88.8 131.58
2011 184.7 126.93 181.45


Adjusted for sub-division and issue of bonus shares in 2005-06 and issue of bonus shares in 2010-11



Financials of ITC

Last five year performance of the stock shows that all critical financial indicator of the company has grown significantly. PAT (Profit after Tax) of the company has doubled. Return on Equity (ROE) has been showing a steady increasing trend up from 27.7% in 2008 to 2011.Return on capital employed is 46% in 2011 which is very healthy.


2007 2008 2009 2010 2011
Summarised Financials (Rs. Crores)

Equity 376 377 377 382 774
Networth 10437 12058 13735 14064 15953
Average Capital Employed 10308 11964 13798 14868 15906
EBITDA 4293 5015 5393 6689 7972
EBIT 3930 4576 4844 6080 7316
PAT 2700 3120 3264 4061 4988

Key Ratios

Net Worth Per Share (Rs.) 13.9 16.0 18.2 18.4 20.6
Return on Equity (%) 27.7 27.7 25.3 29.2 33.2
Return on Avg Capital Employed (%) 38.1 38.3 35.1 40.9 46.0
EV/EBITDA (x) 12.5 15.0 12.4 14.2 16.9
Price Earnings Ratio(x) 20.9 24.9 21.4 24.7 28.2
Earnings Per Share (Rs.) 3.6 4.1 4.3 5.3 6.4


Source of all data is ITC website

Conclusion:

ITC is a very good investment on stand alone basis and does not require even peer group comparison. All such investors who want to get attractive returns without putting themselves into risk element of stock market can safely invest into ITC stock.ITC as a stock has always the value and is going to give good returns for atleast ten years given its growth and strategic thinking by the management.

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