ITC’s tobacco division is now being priced at roughly 11 times its forward earnings, according to a fresh note from Kotak Institutional Equities. The brokerage argues that this multiple is well below the 15‑20x range typical for Indian consumer staples, suggesting a material undervaluation that could translate into upside for shareholders if the market re‑prices the segment. The low multiple stems from a mix of regulatory headwinds and slowing cigarette volumes, while the company’s non‑tobacco businesses – hotels, FMCG, paper and agribusiness – have been posting stronger growth and higher margins.
Kotak’s analysts expect the non‑tobacco earnings to accelerate, driven by brand‑led expansion and cost‑discipline, which could lift the overall earnings trajectory of the conglomerate. A structural solution, the note says, would be to split the tobacco and non‑tobacco operations into separate listed entities. Similar de‑mergers in India have often resulted in a “value‑unlock” premium, as investors can price each business on its own risk‑return profile.
A clean separation could push ITC’s non‑tobacco arm higher on the Nifty, while the tobacco unit might trade at a more appropriate discount. For the average retail investor, the key takeaway is to watch for any corporate action announcements and to weigh the upside against the regulatory risk inherent in tobacco. Holding ITC’s stock could offer a blended exposure, but a targeted allocation to the non‑tobacco segment may provide a cleaner risk‑adjusted return if a split materialises.