ITC Company and Its Peers Comparison

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Well, the ITC company will be evaluated considering a group of 5 peer companies according to the market classifications.

ITC’s relative valuation will be done using our 5-10-5 -star rating methodology (5 companies, 10 parameters, Out of 5 stars).

From this, we will arrive at a combined peer rating for the company.

Companies considered in this analysis are:

  1. ITC Company
  2. VST Industries
  3. Godfrey Philips
  4. Golden Tobacco
  5. NTC Industries

About the ITC Company:

ITC was incorporated in 1910 as the Imperial Tobacco Company and was later renamed as ITC Limited in 2001 where it no longer stands as an acronym. 

ITC is one of the largest private sector companies in India and also a diversified conglomerate with businesses ranging from Fast Moving Consumer Goods, Hotels, Paperboards and Packaging, Agri-Business, and Information Technology.

The Company is acknowledged as one of India’s most valuable business corporations with a gross sales value of approximately $ 11+ billion last year.

It operates across many industries, but all of them require scale and branding for achieving market dominance.

ITC Company strives towards diversified portfolio offerings away from its traditional cigarette business. The company has more than a century of presence in the Indian market and is now a dominant player in Paper and Paperboards, Agri-Business, FMCG, and Hotels.

Some of the largest non-tobacco brands include Ashirvad with revenue of INR 4500+ Crores, Sunfeast with a revenue of INR 3800+ Crore, Bingo with a revenue of INR 2500+ crore, and Classmate with a revenue of INR 1400+ crore.

Each set of business has its competitors and different market conditions, but overall ITC has been successful in establishing its dominance in the Indian market because of its scale, brands, and distribution network.

1. Market Capitalization (★ ★ ★ ★ ★)

ITC Shares Relative Valuation and Peer Comparison

Market capitalization is calculated by multiplying the total number of a company’s outstanding shares by the current market price of one share. Out of the 5 peer companies, ITC Company has the highest market capitalization amongst its peers.

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This shows the highest Enterprise Value amongst the competitors.

Therefore this category gets 5 stars in ITC shares relative valuation.

2. Price/Earnings Ratio (★ ★★☆☆)

The price-earnings ratio is the ratio of a company’s share price to the company’s earnings per share.

The ratio is used for valuing companies and to find out whether they are overvalued or undervalued. P/E higher than Industry average means Overvalued and Lower than Industry average means Undervalued.

ITC Company has the third-highest P/E and its above industry average, so its shares are overvalued on this parameter.

Therefore this category gets 3 stars in ITC shares relative valuation.

3. Price/Book Value Ratio (★ ★ ☆☆☆)

ITC Shares Relative Valuation and Peer Comparison

The price-to-book ratio is a financial ratio used to compare a company’s current market price to its book value.

Lower than average P/B shows undervalued and higher P/B shows overvalued.

ITC shares have the second-highest P/B amongst the competitors.

Therefore this category gets 2 stars in ITC Company peers comparison.

4.Dividend Yield (★ ★★★★)

The dividend yield of a share is the dividend per share, divided by the price per share. This shows how much dividend the company pays out.

The dividend yield above-average line is considered good and vice versa. ITC Company has the highest dividend yield amongst its competitors.

Therefore this category gets 5 stars in ITC shares relative valuation.

Also Watch: ITC vs HUL

5.Price/Sales Ratio (★ ★☆☆☆)

ITC Shares Relative Valuation and Peer Comparison

The price-to-sales ratio calculated by taking a company’s market capitalization (the number of outstanding shares multiplied by the share price) and divide it by the company’s total sales or revenue over the past 12 months.

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The lower the P/S ratio, the more attractive the investment.

ITC Company has the second-highest P/S ratio amongst the competitors which makes its shares highly overvalued on this parameter.

Therefore this category gets 2 stars in ITC shares relative valuation.

6.ROCE (★ ★ ★ ★ ☆)

ROCE is a financial ratio that determines a company’s profitability and the efficiency of capital use.

A higher ROCE implies a more economical use of capital and an above-average ROCE is considered a good investment.

ITC has the second-highest ROCE amongst its competitors and it is also above the average line.

Therefore this category gets 4 stars in ITC shares relative valuation.

7. Return on Assets (★ ★ ★ ★ ☆)

ITC Shares Relative Valuation and Peer Comparison

The return on assets shows the percentage of how profitable a company’s assets are in generating revenue. The higher the ROA better is the asset utilization by the company and the higher the efficiency.

ITC Company has the second-highest ROA amongst its competitors and it is also above the average line.

Therefore this category gets 4 stars in ITC shares relative valuation.

8. Price/ FCF Ratio (★ ☆ ☆☆☆)

This is calculated by dividing market capitalization by the free cash flow of the company.

A lower value for price to free cash flow indicates that the company is undervalued and its stock is relatively cheap.

ITC has the highest Price/FCF ratio amongst its peers and its way above the Industry average line.

This shows that ITC shares are highly overvalued. Therefore this category gets 1 star in ITC shares relative valuation.

9. Earnings Per Share (★ ★ ★ ☆☆)

ITC Shares Relative Valuation and Peer Comparison

Earnings per share (EPS) is a company’s net profit divided by the number of common shares it has outstanding.

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EPS indicates how much money a company makes for each share of its stock, and is a widely used metric to estimate corporate value. The higher the EPS higher is profitability.

ITC is in the 3rd position with EPS also lower than the industry average.

Therefore this category gets 3 stars in ITC shares relative valuation.

Also Watch: ITC 2020 Results Analysis & Discussion

10.Return on Equity (★ ★ ★ ★ ☆)

Return on equity (ROE) is a measure of financial performance calculated by dividing net income by shareholders’ equity.

ROE is considered a measure of how effectively management is using a company’s assets to create profits.

ITC has the 2nd highest ROE amongst the Peers and it’s also above the industry average.

Therefore this category gets 4 stars in ITC shares relative valuation.

Overall Rating of ITC Company

The overall rating is arrived at by taking the average of the above 10 parameter ratings and rounded up if it is above 0.5 and rounded down if it is below 0.5.

The stock is undervalued if the rating is above 3 (i.e 4 or 5 stars), it is fairly valued if the rating is around 3 and is overvalued if the rating is below 3 (i.e 2 or 1 star).

The ratings are exclusive to each company so more than one company can have the same ratings within the peer group.

ITC SHARES (3.3/5)

This means the stock is almost Fairly Valued at the current price levels for FY 2021.

★ ★ ★ ☆ ☆

 
Relative Valuation Summary  
Market Capitalization ★ ★ ★ ★ ★
Price/ Earnings Ratio ★ ★ ★ ☆ ☆
Price/ Book Value Ratio ★ ★ ☆ ☆ ☆
Dividend Yield ★ ★ ★ ★ ★
Price to Sales ★ ★ ☆ ☆ ☆
ROCE ★ ★ ★ ★ ☆
ROA ★ ★ ★ ★ ☆
Price/ Cashflow ★ ☆ ☆ ☆ ☆
Earnings Per Share ★ ★ ★ ☆ ☆
ROE ★ ★ ★ ★ ☆
Overall Peer Rating ★ ★ ★ ☆ ☆
ITC Shares Relative Valuation and Peer Comparison


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