The data point is accurate and interesting to note.
Global peers are moving to a reduced risk products strategy (HnB, Nicotine Pouch) – and their economics might even be better than traditional cigarettes (depends on excise tax regulations to a certain extent)
Meanwhile, thanks to the wisdom of govt policy – ITC or any Indian tobacco company doesn’t have a strategy beyond cigarettes.
May I suggest all shareholders to go through investor presentations for Philip Morris (undoubtedly the leader), British American Tobacco ( where the non combustible business will turn a profit soon) and Altria (utter disaster- see Juul and now buying Njoy and lacks a strong alternatives business but has the stronger profit pool – US Combustibles)
Now to the multiple question. Of course difficult to compare LFL multiples of cigarette businesses.
But does that 30-40% premium sustain if ITC is continually at the mercy of the government for volume growth (no excessive taxation – what is last 10Y volume growth???) and doesn’t have a reduced harm strategy towards which the world is moving. Beedi is a massive employer and will continue to be prevalent.
Now while the stock has worked out – let’s not forget that this management still have no skin in the game and you still have the massive cash pile on the books. GOI stake sale seems to be a boogeyman I’m not much concerned about.
For the stock – valuation re-rating has worked out. Now time for cashflow growth to do the heavy lifting.
Fwiw, I’ve made more money on ITC than on Philip Morris, BAT and Altria combined.
PS – my thoughts from about 2 years ago
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