Archive · 7 Sep 2026
Kotak sees ITC demerger unlocking tobacco and non-tobacco value
ITC owns a tobacco business and several non-tobacco businesses.
Kotak Institutional Equities thinks the stock market may be valuing these businesses too cheaply.
Its analysis suggests the tobacco business is being valued at about 11 times expected earnings.
Kotak believes investors may be expecting little growth from that business.
The brokerage estimates a tobacco value of Rs 19 using a higher earnings multiple.
It estimates the non-tobacco businesses are worth Rs 80 based on their expected EBITDA.
Kotak says these businesses could grow faster as their market shares and profit margins improve.
It believes separating the two groups could help investors value each business more clearly.
Kotak’s reverse sum-of-the-parts analysis values ITC’s tobacco business at about 11 times one-year forward earnings.
The valuation implies investors may expect tobacco earnings to stagnate, assign limited value to non-tobacco operations, or remain indifferent to tobacco.
Kotak applies a 16-times September 2028 earnings multiple to tobacco, estimating a fair value of Rs 19 for the segment.
The brokerage values ITC’s non-tobacco business at Rs 80 using a 30-times September 2028 EBITDA multiple.
Kotak says separating tobacco and non-tobacco operations could attract value and growth investors separately and unlock shareholder value.
- Who
- ITC and Kotak Institutional Equities are central to the analysis.
- What
- Kotak has argued that splitting ITC’s tobacco and non-tobacco businesses could reveal additional shareholder value.
- When
- The analysis uses September 2028 earnings and EBITDA estimates; the article does not provide a specific publication date.
- Where
- The article does not specify a location.
- Why
- Kotak says the two businesses appeal to different investors: tobacco to value and dividend-focused investors, and non-tobacco operations to growth-focused investors.
Kotak’s value-unlocking case
Market’s implied caution
Tobacco valuation
Kotak’s value-unlocking case
Kotak believes a 16-times forward earnings assumption is reasonable and says the current implied valuation leaves too little room for recognizing meaningful earnings growth.
Market’s implied caution
The implied valuation of about 11 times one-year forward earnings suggests investors may expect tobacco earnings to remain weak or stagnate over the long term.
Non-tobacco businesses
Kotak’s value-unlocking case
Kotak expects these operations to grow faster than other companies because ITC has relatively low market shares in several categories and room to improve margins.
Market’s implied caution
The 30-times September 2028 EBITDA multiple may appear expensive compared with some peers, according to the article.
Business structure
Kotak’s value-unlocking case
Kotak believes separating tobacco from non-tobacco operations could allow each entity to attract the investors best suited to its characteristics and unlock significant value.
Market’s implied caution
The article presents the alternative as continuing to value ITC as one large diversified business, which may prevent the market from assigning separate values to the two operations.
- Tobacco implied valuation
- About 11 times one-year forward earnings under Kotak’s reverse sum-of-the-parts analysis.
- Tobacco valuation assumption
- A 16-times September 2028 estimated earnings multiple.
- Tobacco estimated fair value
- Rs 19, according to Kotak’s analysis.
- Non-tobacco valuation assumption
- A 30-times September 2028 estimated EBITDA multiple.
- Non-tobacco estimated fair value
- Rs 80, according to Kotak’s analysis.
- Proposed restructuring
- A vertical split into separate tobacco and non-tobacco entities.
- Investor appeal
- The tobacco entity could attract value and dividend investors, while the non-tobacco entity could attract growth investors.