ITC LIMITED

Saunak Das
Vihika
Sahu
Saurabh
Thakur
Aakrati
Introduction
Type: Public (BSE:ITC)
Founded: 24 August 1910
Radha Bazar Lane, Kolkata, India
Headquarters: Kolkata, India
Key people: Yogesh Chander Deveshwar, Chairman
K. Vaidyanath, Director, Partho Chatterjee, CFO
Industry: Tobacco, foods, hotels, stationery, greeting cards
Products: Cigarettes, packaged food, hotels, apparel
Employees: over 25,000 (2009)
Website: http://www.itcportal.com/
Forbes Global 2000 List: 987 rank (2009)
Sales (Rs.crore):15388.11
Profits (Rs. million): 32636
Market Value($ billion): 13.48
“From a leading cigarette manufacturer to an umbrella
group that offers a diversified product mix”
 ITC's diversification into related and unrelated areas in recent years
Why they did this ?

• Huge Impostion of Govt. on Cigarette Market

• To reduce dependence on cigarette business

How they did ?

• The Company’s relentless efforts to create value through International quality

products.
• Significant investments in technology and product development
• Strong portfolio of brands have enabled it to maintain its leadership position in
terms of market standing and share.
• Customization of product
• Brand image enhancement
ITC PRODUCTS

FMCG-FOOD
Packaged Food
Snack & confectionery
FMCG –FOODS
 Sales & Market Growth
Sales for FMCG business

35,000

30,000

25,000

20,000
Sales
15,000

10,000

5,000

0
2006 2007 2008 2009

Market for Biscuits

11%
31% 10% Sunfeast
Others
Parle
Priya Gold
Britannia
15% 33%
 Positioning of ITC

VPN providing SCM, ERP & CRM

F capability M
A e-choupal rural two-way fulfillment A
R capability R
M K
Cigarette Trade Marketing capability E
E
R Expanded FMCG distribution capability T
S S

Branded Lifestyle Education Matches &

Foods retailing Personal Care
Stationery Agarbattis
Products

A basis for strategic partnerships with other FMCG brand owners

10
Organizational Structure for FMCG
Foods
CNF
Flow Diagram
FACTORY

WHOLESALE
DEALER BASE

RETAILER
WHOLESALE
DISTRIBUTOR
 RATIO ANALYSIS OF ITC LTD:

Financial Ratio Analysis is the evaluation and interpretation of a

company’s financial data using standard financial ratios or accounting
ratios to determine a company’s financial state or condition. A financial
ratio or accounting ratio is a ratio of two values that are taken from a
company financial statement (Balance Sheet, Income Statement,
Statement of Cash Flows, and Statement of Retained Earnings).
 LIQUIDITY RATIOS:
Liquidity ratios provide information about a firm's ability to meet its short- term
financial obligations.

CURRENT RATIO:
The current ratio is the ratio of current assets to current liabilities .
CURRENT RATIO Current Assets/Current Liabilities
Year 2010
CURRENT ASSETS 8127.08
CURRENT LIABILITIES 8048.24
CA/CL 8127.08/8048.24 = 1.009

CURRENT RATIO Current Assets/Current Liabilities

Year 2009
CURRENT ASSETS 8159.73
CURRENT LIABILITIES 4703.63
CA/CL 8159.73/4703.63 = 1.73

IMPLICATION
CR of ITC for 2 years is more than one. Moreover, it is greater than the industry average i.e. 0.886. This
implies that working capital of ITC is always positive.
 QUICK RATIO OR ACID TEST RATIO
The quick ratio is an alternative measure of liquidity that does not include
inventory in the current assets.
QUICK RATIO Current Assets - Inventories/Current Liabilities
Year 2010
CURRENT ASSETS 8127.08
INVENTORIES 4549.07
QUICK ASSETS 8127.08 – 4549.07 = 3578.01
CURRENT LIABILITIES 8048.24
QA/CL 3578.01/8048.24 = 0.44

QUICK RATIO Current Assets - Inventories/Current Liabilities

Year 2009
CURRENT ASSETS 8159.73
INVENTORIES 4599.72
QUICK ASSETS 8159.73 – 4599.72 = 3560.01
CURRENT LIABILITIES 4703.63
QA/CL 3560.01/4703.63 = 0.76

IMPLICATION
Quick ratio is greater than the industry average i.e. 0.389, which means
quick assets are easily convertible into cash.
 SUPER QUICK RATIO:

The Super quick ratio is the most conservative liquidity ratio. It excludes all current assets
except the most liquid: cash and cash equivalents.
SUPER QUICK RATIO Cash + Marketable Securities/Current Liabilities
Year 2010
CASH 1126.28
MARKET SECURITIES 0.0
SUPER QUICK ASSETS 1126.28+ 0.0 = 1126.28
CURRENT LIABILITIES 8048.24
QA/CL 1126.28/8048.24= 0.14

SUPER QUICK RATIO Cash + Marketable Securities/Current Liabilities

Year 2009
CASH 1031.01
MARKET SECURITIES 0.0
SUPER QUICK ASSETS 1031.01 + 0.0 = 1031.01
CURRENT LIABILITIES 4703.63
QA/CL 1031.01/4703.63 = 0.22

IMPLICATION
Super quick ratio is slightly less than the industry average i.e. 0.299. So it can be said
that liquidity position of the company is maintained through quick ratio as compared to
super quick ratio.
Capital Structure / Leverage Ratio:
Financial leverage ratios provide an indication of the long-term solvency of the firm. Unlike liquidity ratios that
are concerned with short-term assets and liabilities, financial leverage ratios measure the extent to which the
firm is using long term debt.
INTEREST COVER RATIO:
The interest cover ratio indicates how well the firm's earnings can cover the interest
payments on its debt.
INTEREST COVER RATIO Profit before Interest & Tax(PBIT)/Interest
Expense
Year 2010
PBIT 6068.67
INTEREST COVER 73
PBIT/INTEREST COVER 6068.67/73 = 83.12

INTEREST COVER RATIO Profit before Interest & Tax(PBIT)/Interest

Expense
Year 2009
PBIT 4844.06
INTEREST COVER 28.38
PBIT/INTEREST COVER 4844.06/28.38 = 170.68

IMPLICATION
Interest cover ratio is very less as compared to industrial avg i.e. 408.58, which implies
that debt servicing capacity of the firm is very less.
 
 
 PROFITABILITY RATIOS:
Profitability ratios offer several different measures of the success of the firm at generating profits.

GROSS PROFIT RATIO:

The gross profit ratio is a measure of the gross profit earned on sales. The gross profit margin
considers the firm's cost of goods sold, but does not include other costs.

GROSS PROFIT RATIO Gross Profit x 100/ Net Sales

Year 2010
GROSS PROFIT 6677.38
NET SALES 18153.19
GP x 100/NS 6677.38 x 100/18153.19 = 36.74

GROSS PROFIT RATIO Gross Profit x 100/ Net Sales

Year 2009
GROSS PROFIT 5393.47
NET SALES 15611.92
GP x 100/NS 5393.47 x 100/15611.92 = 34.54

IMPLICATION
Gross profit ratio is much higher than the industry average i.e 20.08 which is a sign of good
management. It implies that cost of production of the firm is relatively low.
NET PROFIT RATIO:
This ratio measures the net profit earned on sales.
NET PROFIT RATIO Net Profit x 100/ Net Sales
Year 2010
NET PROFIT 4061.00
NET SALES 18153.19
NP x 100/NS 4061.00 x 100/18153.19 = 22.37

NET PROFIT RATIO Net Profit x 100/ Net Sales

Year 2009
NET PROFIT 3263.59
NET SALES 15611.92
NP x 100/NS 3263.59 x 100/15611.92 = 20.90

IMPLICATION
Net profit ratio is less than the industry average i.e. 15.31, which implies that
The returns to owners is inadequate and also firm is not able to withstand
adverse economic conditions like fall in demand for a product or decline in
selling price.
 OPERATING PROFIT RATIO:

The operating profit margin ratio indicates how much profit a company makes after paying for variable costs of
production such as wages, raw materials, etc. It is expressed as a percentage of sales and shows the efficiency of a
company controlling the costs and expenses associated with business operations.

OPERATING PROFIT Profit before Interest & Tax(PBIT)/Net Sales

RATIO
Year 2010
PBIT 6068.67
NET SALES 18153.19
PBIT x 100/NS 6068.67 x 100/18153.19 = 33.43

OPERATING PROFIT Profit before Interest & Tax(PBIT)/Net Sales

RATIO
Year 2009
PBIT 4844.06
NET SALES 15611.92
PBIT x 100/NS 4844.06 x 100/15611.92 = 31.02

IMPLICATION
Operating profit ratio is greater than the industrial average i.e. 22.34. This implies that the company is able to
sustain its profits even after paying for variable cost of production such as wages etc.
 RETURN ON CAPITAL EMPLOYED
Industry average is 106.57.
The firms return on capital employed is very less. The long term funds of owners and
creditors are not efficiently used i.e. the less efficient is use of capital employed.

Ratio = 34.60 (2009)

42.64(2010)

EARNING PER SHARE

Industry average is 30.01.
Our firms’ EPS is less. The profit available to equity share holder in per share basis is very
less.

Ratio = 8.69 (2009)

10.64(2010)
 DIVIDEND PER SHARE

Industrial average is 19.9.

Our firms’ DPS is less.
The dividend paid on a per share basis is very less. DPS is better indicator than EPS. As DPS is very
less as compared to industrial average, it shows very less is received by owners.

RATIO = 13.04(2009)
16.06(2020)
 ACTIVITY OR TURNOVER RATIO:
Asset turnover ratios indicate of how efficiently the firm utilizes its assets. They sometimes are referred to as
efficiency ratios, asset utilization ratios, or asset management ratios. Two commonly used asset turnover ratios are
receivables turnover and inventory turnover.

INVENTORY TURNOVER RATIO:

A measure of the number of times a company's inventory is replaced during a given time period.
INVENTORY TURNOVER Net Sales/ Average (or closing) Stock
RATIO
Year 2010
CL. STOCK 4549.07
NET SALES 18153.19
NS/CL. STOCK 18153.19/4549.07 = 3.99

INVENTORY TURNOVER Net Sales/ Average (or closing) Stock

RATIO
Year 2009
CL. STOCK 4599.72
NET SALES 15611.92
NS/CL. STOCK 15611.92/4599.72 = 3.39

IMPLICATION

Inventory turnover ratio is less than the induatrial average i.e. 7.68, which implies that the inventory is not easily converted
into cash.
 DEBTOR TURNOVER RATIO:
This ratio tell efficient are the credit sales of the company.
DEBTOR TURNOVER Credit sales or net sales/ Average (orclosing)
RATIO debtors
Year 2010
NET SALES 18153.19
S. DEBTORS 858.80
NS/ SD 18153.19/858.80 = 21.13

DEBTOR TURNOVER Credit sales or net sales/ Average (orclosing)

RATIO debtors
Year 2009
NET SALES 15611.92
S. DEBTORS 668.67
NS/SD 15611.92/668.67 = 23.34

IMPLICATION
Debtors turnover ratio is less than the industrial average i.e. 46.30, which implies that the liquidity of the debtors
of the firm is very less and debtors are not easily convertible into cash.
 INTERPRETATION OF RATIOS:
LIQUIDITY RATIOS:

• As compared to 2009 the liquidity condition has deteriorated marginally in 2010.

• As evident from the above, the ideal current ratio 2:1 has not been maintained.
• Similarly the ideal liquid or quick ratio of 1:1 has not been maintained.
• ITC’s low super quick ratio shows it is not in a position to quickly liquidate its assets and
short term liabilities. But there is no such liquidity need for the country so the low ratio
doesn’t matter.

2009 2010

Current Ratio 1.73:1 1.10:1

Quick Ratio 0.76:1 0.44:1

Super Quick Ratio 0.22:1 0.14:1

PROFITABILITY RATIOS:
• Gross profit has increased by 2.20 % which is a good sign for the company.
• The profit margin of 33.43 which has also increased by more than 2% is quiet impressive.
• ITC has regularly shown increase in profits and this is largely due to the ever increasing sales.
• Operating profit ratio has also improved due to reduction in operating expenses.
• The net margin of 22.37% is also quite impressive.
• PAT of ITC, like PBIT, has shown an upward trend. The financing decisions and the tax have altered
the overall impact on the profitability of the company.

2009 2010

Gross Profit Ratio 34.54% 36.74%

Net Profit Ratio 20.90% 22.37%

Profit Margin Ratio 31.23% 33.13%

Operating Profit Ratio 31.02% 33.43%

TURNOVER RATIOS:
• Inventory Ratio of 3.99 shows that the company is efficient in selling its stock.
• Inventory conversion rate has also improved from three and a half months to 3 months which
is very efficient.
• The ratio of 21.13 shows that company is good in getting the returns from the debtors and is
in no viable risk of bad debts.
• Working Capital turnover ratio is good.
• Fixed asset ratio which is less has also improved. This also means that fixed assets have been
utilized better to get more turnovers.
2009 2010
Inventory 3.39:1 3.99:1
Turnover Ratio
Inventory Conv. 107 Days 91 Days
Period
Debtors Turnover 23.34:1 21.13:1
Ratio
Average 16 Days 17 Days
Collection Period
Current Asset 1.91 2.23
Turnover Ratio
Net Current Asset 2.40 2.66
Turnover Ratio
Fixed Asset 1.84 1.98
Turnover Ratio
Working Capital 12.85 17.99
Ratio
 PROFIT RATIOS BASED ON INVESTMENT:
• Dividend per share of ITC is very good. Also the rise in dividend from 3.70 to 10
shows that the company is making good profits and proving high returns to its
shareholders.
• Return on capital employed is also very high showing that the shareholders are
encouraged to buy more chare whenever IPO takes place.
• Even the long term debts are providing good returns.

2009 2010
Return On Capital 34.60% 42.64%
Employed
Earnings Per Share 8.65 10.64
(Rs)
Dividend Payout Ratio 50.06% 109.63%
Net Profit
Dividend Per Share 3.70 10
(Rs)
Return on Long Term 34.75% 42.64%
Funds
 NEW PRODUCTS LAUNCHED-2008-09

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