Should ITC be valued as an FMCG or Hotel Co?

How should an investor value ITC on today? The question is worth asking given its current P/E of around 28 times when compared with Hindustan Lever (P/E 41) and Indian Hotels (P/E 51).

No doubt, Hindustan Lever is the best FMCG and agro-commodity company in India while Indian Hotels is the first name that comes to mind when one talks about hotels.

However, ITC is the current leader in the branded food segment, and is the second largest player in the hotels business. It is likely to overtake Indian Hotels in net profit this year. In the paper business, ITC is the number two player in sales and profits. ITC is also the second largest player in agro-commodities.

For ITC, the share of FMCG and hotels business has been just 4% each with paper accounting for 11% and agri-business 7%. With just 4% of sales, ITC is emerging as the leader in the hotels and FMCG segments. Just think - what would be the potential when the percentage doubles in the coming years?

The stock is attractively priced taking into consideration the future growth potential of various businesses. For the current quarter ending March 31, 2006, ITC is likely to post sales above Rs 3,000 crore. Net profit is likely to surge 46% to above Rs 600 crore from Rs 417 crore in March 2005.

ITC's e-Choupal - an online initiative - now covers close to 3.5 million farmers across the nation. It is covering more than 31,000 villages through 5,373 kiosks. The benefits of e-Choupal are huge as there are gross disparities in pricing of essential commodities like wheat, rice, soya etc sold at the farmer level and the retail level.

The differences are as high as 100-300%, and ITC will now be able to capture value of commodities at attractive levels and also log huge jump in its agro-commodities business. The company is implementing bulk storage handling and transportation facilities to improve logistics efficiencies.

In the hotels business, it is already giving stiff competition to the market leader "� Indian Hotels. With three news hotels coming up, the earning potential is likely to be higher.

ITC's international business division is the country's 2nd largest exporter of agri-products with exports of over Rs 500 crore and equal sales in the domestic market. ITC has also applied for carbon credits.

The question worth pondering over is - should you invest in ITC?