Tobacco Stocks in India: Are Their Current Valuations Attractive?

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Tobacco Stocks in India: Are Their Current Valuations Attractive?

Tobacco Stocks in India: An Overview

In India, tobacco is considered the most economically significant agricultural crop. This is because of the fact that tobacco crops are drought tolerant, hardy, and require a short duration to yield. It can also be grown on soil where no other crop is able to grow in a profitable manner. India is the third largest producer and exporter of tobacco after China and Brazil, respectively. Tobacco production in India has multiple styles, such as Flue-cured Virginia (FCV) and also different types of non-FCV tobacco. All of these different types of tobacco are grown in Indian soil in diverse agroecological situations, which are spread all over the country. 

Despite all the criticism from the media and news, tobacco stocks which come under the umbrella of sin stocks, have always been an abundant investment. The main reason for such attraction is because of the potential of the product, which is still present in the country despite tons of curbs being placed by the government. With the help of this article, we are aiming to provide insights into the tobacco stock industry in India and which are the best stocks in this industry. 

Tobacco Industry in India

Right now, India has a population of 267 million users across all states, which consumes tobacco in one way or the other. This results in tobacco being one of the most important crops of modern India. The total export done in the fiscal year of 2021 was $ 923.8 million. Even though all these substantial numbers that tobacco companies bring to the table, it still has a lot of problems as the tobacco industry constantly faces roadblocks, and the products under it come with lethal warnings. As a result, tobacco companies are now moving towards other business segments one such industry is the production of nicotine-based products, which don't have that many health risks. 

On the other hand, in India, reports have shown people dying due to ill consumption of tobacco are three times higher than dying by the use of any other products. This results in the government being highly devoted to reducing the possible consumption of tobacco with the implementation of high taxes on these types of products. 

Top Tobacco Brands In India 

Now let's look at the top three tobacco stocks in India and how these companies have been performing over the years. 

1. ITC Ltd

The company ITC was founded in 1910, and in 2022 it will be the biggest name in the tobacco industry. In addition to this, ITC is partially owned by British American Tobacco; along with this, it has dominating holdings of shares by 79% of the total sales volume. Over the years, ITC has come up with many new names for its cigarettes. Currently, it manufactures cigarettes for Insignia, India Kings, Classic, Gold Flake, Wills, Navy Cut, Players, Berkeley, and more. 

Apart from this, there is one thing investors need to keep in mind when they are investing in this stock. ITC is not just a cigarette manufacturing company, the company has been involved in 13 businesses that are spread across 5 different segments. These segments are mainly FMCG, hotels, software, packaging, and agribusiness. 

As of now, the debt-equity of ITC is at 0, which is a great sign for investors to invest. Over the years, we have seen ITC maintain a good dividend payout to its stock investors, with a payout of 93%, along with a dividend yield of 3.79%. If you are interested in buying ITC stocks, then you should know its stock trades at a PE of 27.77, which seems to be slightly higher than the industry average PE that can be found at 18.6 

2. Godfrey Phillips

This company was founded in 1936, and it originated in London, England, in 1844. In 1968 one of the biggest names in the international market Philio Morris took over the company and rebranded it. With the takeover, the company was able to sell its products globally under the name of a renowned brand called Marlboro. Right now, this brand is considered to be a flagship company of the Modi Enterprise Group. 

Over the years, the company has been able to produce different types of cigarettes, smoking tobacco, and even cigars. Apart from this, we can also find companies to be investing in pan masala, chewing, and other forms of confectionery products. As far as the financial status of the company, we have seen an increasing trend in its profit. 

The company was able to make a profit of Rs 137 crore in 2017, but if we compare it with the gains made in the year 2020, we can see a considerable jump which records Rs 385 crore. This is almost triple the profits that the company created in 2017. In the year 2021, the company suffered a little pushback in profits, with a gain accumulating Rs 377 crores. But the overall net profit was Rs 438 crore which shows excellent recovery all around. 

Apart from this, the company has a healthy profit CAGR of 33.26% with minimal debt, which has a debt-equity ratio of 0.12. In addition to this, the stock trades of this company stand at a PE of 16.88, which is considered to be below the overall industry average. 

3. VST Industries 

The third in our list of best tobacco company stocks in India is VST industries which have its headquarters situated in Hyderabad. Also, it is a subsidiary of British American Tobacco (BAT). Some of the most well-known cigarettes manufactured by this company are Total, Charms, Charminar, Editions, Special, and Moments. Apart from this, one great trivia about this company is that the last Nizam of Hyderabad used to smoke this company's manufactured Charminar cigarettes. 

Just like the other two companies present in this list, VST Industries shares have also shown excellent results over the past few years. The company saw an upward trend in revenue from Rs 922 crores in 2017 to Rs 1,239 crores in 2020. Speaking of profits, the company saw Rs 182 crore of profit in 2018, and in 2022, the profits reached the astonishing mark of Rs 320 crore.

All of this resulted in the company achieving a 3-year profit CAGR of 12.18%. Furthermore, the company is able to maintain zero debt and provides a dividend yield of 4.40%. The stocks of this company are traded at a PE of 27.77, which is above the industry's average PE. 

Best Tobacco Shares in India

Given below is the list of top tobacco companies in India in which you can invest in. 

Company NameMarket Cap P/E
ITC Ltd429,445 Crores27.77
Godfrey Philip India7,180 Crores16.88
VST Industries5,393 Crores27.77
The Indian Wood Products169 Crores32.28
Golden Tobacco136 Crores27.77
NTC Industries102 Crores27.77

 (Data as of 19th October 2022.)

Disclaimer: The securities quoted are exemplary and not recommendatory. Past performance is not indicative of future returns

Wrapping Up

So these were some of the most crucial tobacco stocks in the Indian stock market. Even though there has been a constant war to reduce the consumption of tobacco in India. The rise of consumer numbers is making this industry a good place to invest your money in.

If you want to invest in tobacco stocks, you should definitely take note that the government of India is always throwing curve balls at this industry. As a result, every now and then, the tobacco industry in India faces new challenges which come with the potential of tearing this industry apart. 

This is not an investment advisory. The blog is for information purposes only. Investments in the securities market are subject to market risks, read all the related documents carefully before investing. Past performance is not indicative of future returns. Please consider your specific investment requirements, risk tolerance, goal, time frame, risk and reward balance, and the cost associated with the investment before choosing a fund, or designing a portfolio that suits your needs. The performance and returns of any investment portfolio can neither be predicted nor guaranteed. 

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