---
endpoint: analytics
pattern: Consumer
status: done
latency_ms: 228789
conversation_id: edcc7f2a-8a58-4e7e-83d9-613465d5dcba
citations: 1
created: 2026-05-31 18:25:04Z
---

# How does ITC’s valuation compare to peers, and what justifies its premium/discount?

# ITC Ltd — Valuation vs. Indian Consumer Peers

**Bottom line:** ITC trades at a structural **40–60% discount** to the Indian staples/discretionary peer group on PE, justified by (a) the regulatory overhang on its cigarette engine (~80% of segment EBIT), (b) materially slower top-line and EPS growth (~7–9% CAGR vs. peers at 10–25%), and (c) conglomerate structure. The discount is partially offset by sector-leading dividend yield (~3.9%), ROE (32–38%), and the Hotels demerger / ITC Infotech unlocking optionality. CLSA rates ITC **Outperform** with a target price of **Rs496** (~19% upside from Rs417 at 5-Jun-2025), implied at a blended SOTP + DCF [5].

---

## 1. Headline Valuation Snapshot (5 Jun 2025)

ITC stands out as the **lowest-multiple name** in CLSA's India consumer coverage on PE and EV/EBITDA, while delivering one of the highest ROEs and the highest dividend yields.

| Metric | **ITC** | Staples Avg | QSR Avg | Discretionary Avg |
|---|---|---|---|---|
| FY26 PE | **24.1x** | 49.7x | 115.5x | 72.8x [1] |
| FY27 PE | **20.9x** | 43.0x | 81.5x | 41.0x [1] |
| FY26 EV/EBITDA | **18.4x** | 34.4x | 24.4x | 35.0x [2] |
| FY27 EV/EBITDA | **15.7x** | 30.0x | 20.2x | (5.9x) [2] |
| FY26 / FY27 ROE | **32% / 38%** | 39% / 42% | 16% / 19% | 17% / 20% [2] |
| FY27 Dividend Yield | **3.9%** | 1.9% | 2.2% | 0.2% [2] |
| Revenue CAGR FY24-27 | **9%** | 10% (staples) | 18% | 17% [2] |
| EPS CAGR FY24-27 | **7%** | 12% | 20% | 6% [2] |

Source: CLSA India consumer 4Q review, 5-Jun-2025 [1][2].

---

## 2. Stock-by-Stock PE Comparison — ITC vs. The Universe

The pure FY26/FY27 PE table makes the discount explicit. ITC is rated **O-PF** with the lowest PE in the entire 23-name coverage list except for loss-making/NM names (Swiggy, RBA, ABFRL):

| Ticker | Company | Rating | Mkt Cap (US$bn) | TP (Rs) | CMP (Rs) | Upside | **FY26 PE** | **FY27 PE** |
|---|---|---|---|---|---|---|---|---|
| **ITC.BO** | **ITC Ltd** | **O-PF** | **61.5** | **496** | **417** | **+19%** | **24.1** | **20.9** |
| NEST.BO | Nestle India | O-PF | 27.2 | 2,695 | 2,391 | +13% | 69.5 | 60.5 |
| BRIT.NS | Britannia | O-PF | 15.8 | 5,973 | 5,561 | +7% | 50.3 | 42.7 |
| HLL.BO | Hindustan Unilever | U-PF | 65.3 | 1,943 | 2,352 | -17% | 51.3 | 46.3 |
| DABU.NS | Dabur | HLD | 10.1 | 521 | 485 | +8% | 42.6 | 36.7 |
| MRCO.BO | Marico | U-PF | 10.7 | 505 | 703 | -28% | 51.2 | 46.0 |
| COLG.BO | Colgate Palmolive (India) | HLD | 7.9 | 2,266 | 2,475 | -8% | 47.8 | 43.9 |
| GOCP.BO | Godrej Consumer | U-PF | 15.2 | 1,062 | 1,239 | -14% | 49.7 | 41.9 |
| TACN.NS | Tata Consumer | HLD | 13.0 | 1,044 | 1,115 | -6% | 62.5 | 52.5 |
| EMAM.NS | Emami | HLD | 3.0 | 538 | 577 | -7% | 30.4 | 27.1 |
| TITN.BO | Titan Co | O-PF | 36.6 | 4,326 | 3,521 | +23% | 64.0 | 50.2 |
| ASPN.NS | Asian Paints | U-PF | 25.4 | 1,966 | 2,256 | -13% | 49.3 | 46.7 |
| AVEU.NS | Avenue Supermarts (DMart) | O-PF | 30.5 | 5,549 | 4,056 | +37% | 69.2 | 55.7 |
| VARB.BO | Varun Beverages | HC O-PF | 19.0 | 817 | 474 | +72% | 47.8 | 38.4 |

Source: CLSA coverage comp [1].

**Read-through:** ITC's FY27 PE of **20.9x** is the lowest in staples, sitting **less than half** the staples average of 43.0x and **roughly one-third** of Nestle India's 60.5x [1]. Even Emami — the most discounted "pure FMCG" name — trades at 27.1x FY27, ~30% above ITC's multiple [1].

---

## 3. ITC vs. Its Own History — The Discount Is *Not* Cheap by Self-Comparison

Critically, ITC is **already trading at a 5.4% premium to its own 10-year mean** forward PE — i.e., the optical "discount-to-peers" narrative does not mean ITC itself is undervalued in absolute terms.

| Stock | Current 12-Mth Fwd PE | Long-Run Avg PE | Premium/(Discount) to Avg | +1 / -1 StDev |
|---|---|---|---|---|
| **ITC** | **23.8x** | **22.5x** | **+5.4%** | **26.8x / 18.3x** [4] |
| Nestle India | 66.0x | 57.0x | +15.7% | 66.6x / 47.4x |
| Britannia | 51.9x | 45.9x | +13.1% | 51.9x / 39.9x |
| HUL | ~50.0x | ~50x | in-line | — |
| Dabur | 42.8x | 42.5x | +0.8% | 48.7x / 36.3x |
| Marico | 49.6x | 41.5x | +19.6% (above +1 SD) | 46.1x / 36.8x |
| Tata Consumer | 60.0x | 39.0x | +53.9% | 55.7x / 22.2x |
| Titan | 64.8x | 55.9x | +16.0% | 71.2x / 40.6x |
| Asian Paints | 48.6x | 53.0x | **-8.5%** (discount) | 63.7x / 42.4x |
| DMart | 75.7x | 84.2x | **-10.1%** (discount) | 101.5x / 66.9x |

Source: CLSA, 5-Jun-2025 [4].

**Read-through:** ITC's "valuation discount" vs. peers is **structural and persistent** — the absolute multiple of ~24x has historically averaged ~22.5x. It is not a re-rating story like Asian Paints (now at a real discount to its own history) but a "yield/dividend + low-volatility cigarette compounder" trade.

---

## 4. Earnings Power Behind the Valuation

The ITC discount reflects a fundamentally slower growth profile. Despite higher absolute scale, growth is muted vs. peers:

| Metric (FY25→FY27) | **ITC** | Britannia | Nestle | HUL | Eternal | Titan |
|---|---|---|---|---|---|---|
| Revenue (Rs bn) | 686 → 754 → 841 | 179 → 198 → 221 | 195 → 201 → 227 | 622 → 680 → 745 | 202 → 291 → 406 | 548 → 658 → 819 |
| EBITDA (Rs bn) | 233 → 264 → 312 | 32 → 38 → 44 | 46 → 46 → 55 | 139 → 150 → 166 | 6 → 16 → 78 | 53 → 73 → 91 |
| PAT (Rs bn) | 196 → 217 → 250 | 22 → 27 → 31 | 32 → 33 → 38 | 104 → 108 → — | 5 → ~? → 57 | 33 → 49 → 62 |
| Revenue CAGR (FY24-27) | **9%** | 10% | 6% | — | 50% | 20% |
| EPS CAGR (FY24-27) | **7%** | 13% | 8% | — | NM | 21% |

Source: CLSA coverage comp [3].

---

## 5. What Justifies the ITC Discount

### A. Regulatory & Structural Headwinds (the dominant driver of the discount)
- **Cigarette dependence:** Cigarettes account for ~85% of segment EBIT (Rs51.2bn of Rs59.2bn in 4QFY25 segment EBIT). Cigarette EBIT margin contracted 120bps YoY due to leaf-tobacco cost escalation. The sector faces perpetual taxation, anti-smoking, and illicit-trade risks [9][10].
- **Investment risk list (CLSA):** "increase in illicit cigarettes, anti-smoking regulations, sharp goods and services tax/cess hikes, and aggressive diversification in the healthcare sector" — these structural overhangs cap the multiple regardless of execution [10].

### B. Slower growth profile
- ITC's revenue CAGR (~9%) and EPS CAGR (~7%) FY24–27 are below the staples average (10% / 12%) and well below QSR (18% / 20%) and discretionary names (17%) [2].
- The cigarette business is "volume-led growth" (~6% YoY), with pricing flattish and margins under pressure from leaf tobacco inflation [9].

### C. FMCG profitability gap
- ITC's "Other FMCG" segment generated only **6.3% segment EBIT margin** in 4QFY25, down 273bps YoY — far below pure-play FMCG peers (HUL, Nestle, Dabur all run 20%+ EBITDA margins) [9].
- This drags blended group margins below the staples cohort.

### D. Conglomerate / capital allocation
- ITC has historically traded at a conglomerate discount given its mix of cigarettes + FMCG + Agri + Paperboards + Hotels + Infotech. The recent **Hotels demerger (Jan 2025)** has started to unlock value, signaling improved capital discipline [9].

---

## 6. What Justifies the (Partial) Premium / Resilience

### A. Dividend yield — best in class
- ITC offers a **FY27 dividend yield of 3.9%** — multiples above the staples avg (1.9%), QSR (2.2%), and discretionary (0.2%) [2].
- FY26 total dividend was **Rs14.50/share** (Rs6.50 interim + Rs8.00 final), confirming the yield is real cash, not a payout ratio illusion [13].

### B. Profitability
- ROE of **32% (FY26) / 38% (FY27)** is well above the discretionary cohort (17%/20%) and competitive with the staples cohort (39%/42%), despite a far lower multiple [2].
- The cigarette business throws off enormous cash with limited capex needs.

### C. Catalysts that could narrow the discount
- **Stable tax regime in Union Budget FY26** — no cigarette tax/cess hike, "aiding volume growth" from illicit-trade share gains [9].
- **ITC Infotech listing** — potential value-unlock catalyst [11].
- **Other FMCG restructuring** — margin recovery would re-rate the cigarettes-ex multiple [11].
- **Hotels demerger** already executed; "the company is increasingly looking at capital allocation and unlocking value" [9].

---

## 7. How CLSA Builds the Rs496 Target

CLSA values ITC on a **50/50 blend of SOTP and DCF**, arriving at Rs496 (cut from Rs518) [5]:

### SOTP Build — Rs493/share
| Segment | Method | Multiple | Rs/share |
|---|---|---|---|
| **Cigarettes** | PE on Net Profit | **20x** Mar'27CL PE | **284.7 (58%)** |
| FMCG-Others | EV/Sales | 6x | 128.7 (26%) |
| Hotels (Others) | EV/EBITDA | 25x | 19.8 |
| Paperboards & Packaging | EV/EBITDA | 12x | 21.7 |
| Agri-business | EV/EBITDA | 8x | 15.5 |
| ITC Infotech | PE | 25x | 1.9 |
| Net cash | 1x | — | 21.0 |
| **Fair value** | | | **493** [6] |

**Key insight from the SOTP:** the cigarette business is valued at just **20x PE**, while peer FMCG names trade at 40-60x. This is the single biggest source of the ITC discount — investors haircut the cigarette earnings stream heavily for regulatory tail-risk [12].

### DCF Build — Rs498/share
- 25 years of explicit forecasts (to capture India's consumption runway)
- WACC: **11.9%** (CoE = WACC, beta 0.927, MRP 5.25%, RFR 7%)
- Terminal growth: **4%**
- Implied stock price: **Rs498** [7]

### Investment thesis (CLSA's view)
"A major portion of ITC's profits come from its cigarettes business, which has legs to grow on the back of share gains from the illicit sector. We believe a stable tax regime would aid growth in cigarette volumes while margins for the other FMCG business would continue on an upward trajectory. The de-merger of its hotels business also assures investors that the company is increasingly looking at capital allocation and unlocking value." [9]

---

## 8. Synthesis — Why The Discount Persists But Is Defensible

| Driver | Effect on Multiple | Magnitude |
|---|---|---|
| Cigarette regulatory risk | **Cap** the multiple | -25 to -30 PE points vs. pure FMCG |
| Slower revenue/EPS growth (7-9% vs 10-25%) | **Cap** the multiple | -10 to -15 PE points |
| Lower FMCG-Others EBIT margin (6.3% vs 15-25% for peers) | **Cap** the multiple | -5 PE points |
| Conglomerate structure | Historical drag (now narrowing post-Hotels demerger) | -5 PE points |
| Best-in-class dividend yield (3.9%) | **Support** | +2-3 PE points |
| Sector-leading ROE (32-38%) | **Support** | +3-5 PE points |
| Hotels demerger / Infotech listing optionality | **Support** | +2-3 PE points |

**Net read:** ITC's ~21x FY27 PE versus a 43x staples average represents a "fair discount" not a "mispricing." The discount won't fully close until either (a) the cigarette business proves it can grow volumes durably under a stable tax regime, OR (b) the non-cigarette portfolio scales materially in margin/revenue contribution, OR (c) further value-unlock events (ITC Infotech listing, FMCG demerger) accelerate. Until then, the stock works as a **high-yield, low-vol, defensive compounder** — CLSA's Outperform with 19% TP upside reflects this base case [5][9].

---

**Sources**
[1] India consumer (4Q review: eroding moat(s)) — CLSA (5-Jun-2025) — Coverage comp table 1, FY26/FY27 PE, market cap, TP — 607961234LinqAlpha.PDF
[2] India consumer (4Q review) — CLSA (5-Jun-2025) — Coverage comp table 2: EV/EBITDA, ROE, CAGR, dividend yield — 607961234LinqAlpha.PDF
[3] India consumer (4Q review) — CLSA (5-Jun-2025) — Coverage comp table 3: Revenue, EBITDA, PAT projections — 607961234LinqAlpha.PDF
[4] India consumer (4Q review) — CLSA (5-Jun-2025) — ITC 12-month forward PE history (23.8x vs LRA 22.5x, +5.4%) — 607961234LinqAlpha.PDF
[5] ITC - O-PF (In-line sales & slightly weak margins) — CLSA (22-May-2025) — Target price calculation (Rs496, 50/50 SOTP+DCF) — 607960308LinqAlpha.PDF
[6] ITC - O-PF — CLSA (22-May-2025) — SOTP build (cigarettes at 20x PE, FMCG at 6x EV/S) — 607960308LinqAlpha.PDF
[7] ITC - O-PF — CLSA (22-May-2025) — DCF assumptions (WACC 11.9%, 4% terminal growth, implied Rs498) — 607960308LinqAlpha.PDF
[8] India consumer (4Q review) — CLSA (5-Jun-2025) — FY27CL PE vs FY24-27 EPS CAGR comp (ITC 21x / 6.5%) — 607961234LinqAlpha.PDF
[9] ITC - O-PF — CLSA (22-May-2025) — Investment thesis: cigarette share gains + hotels demerger value unlock — 607960308LinqAlpha.PDF
[10] ITC - O-PF — CLSA (22-May-2025) — Investment risks (illicit trade, anti-smoking regs, GST/cess hikes) — 607960308LinqAlpha.PDF
[11] ITC - O-PF — CLSA (22-May-2025) — Catalysts (Infotech listing, FMCG restructuring, cigarette volume growth) — 607960308LinqAlpha.PDF
[12] ITC - O-PF — CLSA (22-May-2025) — SOTP description: cigarettes 20x Mar'27CL PE, FMCG-Others 6x EV/Sales — 607960308LinqAlpha.PDF
[13] ITC Limited Q4 FY26 Results — Corporate Filing — Total FY26 dividend Rs14.50/share (interim Rs6.50 + final Rs8.00)

## Citations

- [13] **ITC Limited, Q4 25/26 Report** · external

