ITC, like its peers in the FMCG sector, has always been an “expensive” stock, quoting at an exorbitant PE. Yet, if you had just closed your eyes and bought the stock 10 years ago (24.10.2002), you would be staring at a 1267.28% returns. That is, your money would have multiplied 13.67 times.
If you had bought the stock 5 years ago (24.10.2007), you would have earned a 214% profit, meaning a simple average return of about 40% return per year.
The million-dollar question is whether it is too late in the day now to buy the ITC stock. This question is answered admirably by Kiran Kabtta Somwanshi of the Economic Times in the piece “Four strong reasons why you should buy ITC’s stock for your retirement“. Lets look at those reasons:
1. ITC has reduced dependence on the cigarettes business and shift to the FMCG, agri and hospitality.
2. ITC has made huge investments in the FMCG business, agri, paperboard & hotels business which will create long term benefits for it.
3. ITC is the leader in the cigarettes and paper business & is among the three players in the hotels business. In the FMCG sector, it is fast gaining market share in high-clutter categories like biscuits, salty snacks, noodles and personal products.
4. ITC has a shareholder friendly culture with regular bonus issues and high dividend payouts.
The author exhorts investors with a clear long-term horizon to invest in the stock without further delay.
This is very sound advice and I do agree with the analysis. Though the P/E of 36 appears daunting at first glance, the growth engine is intact. As JP Morgan says in its research report “ITC should remain a core long-term holding given steady cigarette EBIT growth, improving profitability of other FMCG business, high free cash flow generation and potential for higher dividend payout“.
The best thing an investor can do is to start a SIP and slowly and steadily buy the ITC stock with the clear understanding that it is a compounding machine, much like HDFC, which will generate 20+ returns year after year.