CONGLOMERATE

DISCOUNTING
INTRODUCTION
• Insignia, India Kings, Lucky Strike, Classic
1 TOBACCO
• Gold Flake, Navy Cut, Players, Scissors

• Packaging Boards, Specialty Boards

2 PAPER PRODUCTS
• Printing Paper, Décor Paper, Classmate

• Food Grains, Marine Products

3 AGRI-BUSINESS
• Processed Fruits, Coffee,

• Fortune, Welcome Heritage Hotels

4 HOTELS
• Gardenia, Grand Chola, Windsor

• Bingo, Aashirvaad, Candyman, Sunfeast

5 FMCG & OTHERS
• Fiama, Vivel, John Players, AIM Matches
APPROACH

1. Identification of 1. Identification of Profit 1. Obtain the Equivalent

competitors in each of Before Tax (PBT) in Price of ITC in each
the businesses ITC each of the segments segment by
operates in of ITC multiplying P/E with
PAT
2. Identified Price to 2. Extrapolating PBT to 2. Compare sum of parts
Earnings (P/E) to obtain Profit After Tax evaluation with actual
compare between ITC (PAT) as a measure of Market Capitalization
and competitors Earnings of ITC

Competition ITC Financial Comparison

COMPETITOR P/E ANALYSIS
IDENTIFIED MEDIAN P/E RATIO IN EACH OF THE SEGMENTS THAT ITC IS COMPETING IN THE WORLD

TOBACCO PAPER PRODUCTS AGRI-BUSINESS HOTELS FMCG & OTHERS

Company P/E Company P/E Company P/E Company P/E Company P/E

ITC 26.53 Astron - Kraft 18.04 Godrej Agrvert 47.87 Indian Hotels 60.35 HUL 58.68

Godfrey 15.66 JK Paper 4.34 Asian Hotels West 12.33 Nestle 67.24

VST Industries 21.84 Internat Paper 8.44 Asian Hotels East 11.02 Dabur 56.86

Golden Tobacco 2.64 Seshayee Paper 5.87 EIH 58.19 Britannia 56.63

West Coast Paper 5.12 Marico 42.09

Mean 16.67 Mean 8.36 Mean 47.87 Mean 35.47 Mean 56.30
Median 18.75 Median 5.87 Median 47.87 Median 35.26 Median 56.86
IS ITC CONGLOMERATE DISCOUNTED?
TRANSFORMED P/E RATIO INTO EQUIVALENT SHARE PRICE BY MULTIPLYING WITH EARNINGS

PBT (ACTUALS) PAT (EARNINGS) COMPETITOR EQUIVALENT PRICE ITC Market

P/E ratio
in crores in crores in crores 332 Capitalization
TOBACCO 14,551.00 10,587.23 18.75 198,510.52 (in 1000 crores)
PAPER PRODUCTS 1,239.30 901.71 5.87 5,293.03
AGRI-BUSINESS 776.63 565.07 47.87 27,049.98
HOTELS 177.74 129.32 35.26 4,559.92 ITC Equivalent
FMCG & OTHERS 386.19 280.99 56.86 159,77.08
251 Evaluation
(in 1000 crores)
TOTAL 17,130.86 12,464.32 251,390.53

• Extra premium in ITC valuation because of the effects of synergies

24% • ITC stock value is higher than sum of standalone values of each business of ITC by 81,000 crores
• Synergies exist as per stock market in the case of ITS since whole is greater than sum of parts
THANK YOU