ITC Ltd. Valuation Shifts to Attractive Amidst Market Headwinds

Valuation Metrics Reflect Enhanced Price Attractiveness

ITC’s current P/E ratio stands at 16.26, a figure that has contributed significantly to the company’s upgraded valuation grade from fair to attractive. This P/E level is notably lower than the historical averages for FMCG peers, which often trade in the mid-20s, signalling a potential undervaluation relative to sector norms. The price-to-book value ratio of 5.53, while elevated compared to some peers, remains consistent with ITC’s strong brand equity and asset base. These valuation multiples suggest that the market is pricing ITC at a discount to its intrinsic value, especially when considering its robust return on capital employed (ROCE) of 46.73% and return on equity (ROE) of 33.44%.

Further supporting the valuation attractiveness is the company’s enterprise value to EBITDA (EV/EBITDA) ratio of 13.94, which is competitive within the FMCG sector. The PEG ratio of 0.73 also indicates that ITC’s earnings growth prospects are favourably priced relative to its earnings multiple, enhancing its appeal for value-oriented investors. Dividend yield at 4.14% adds an income component that bolsters total shareholder returns, particularly in a low-yield environment.

Stock Performance Versus Market Benchmarks

Despite these positive valuation signals, ITC’s stock price has underperformed the Sensex over multiple time horizons. Year-to-date, ITC has declined by 22.12%, compared to a modest 1.65% dip in the Sensex. Over the past year, the stock has fallen 31.10%, while the benchmark index gained 6.66%. Even on a three-year basis, ITC’s return of -12.80% contrasts sharply with the Sensex’s robust 37.76% gain. This underperformance reflects sector-specific headwinds and broader market rotations away from traditional FMCG stocks.

However, longer-term returns tell a more balanced story. Over five years, ITC has delivered a 44.26% return, albeit trailing the Sensex’s 65.60%. Over a decade, ITC’s 54.73% gain is dwarfed by the Sensex’s 244.38%, underscoring the challenges the company has faced in maintaining growth momentum amid evolving consumer preferences and regulatory pressures.

Mojo Score and Grade Upgrade: A Signal of Stabilising Fundamentals

MarketsMOJO’s latest assessment upgraded ITC’s Mojo Grade from Sell to Hold on 4 February 2026, reflecting a more balanced outlook on the company’s valuation and operational prospects. The Mojo Score of 51.0 places ITC in a neutral zone, indicating neither strong buy nor sell signals but suggesting that the stock is fairly valued with potential for moderate appreciation. The Market Cap Grade remains at 1, signalling that ITC is a large-cap stock with significant market presence but limited growth acceleration in the near term.

Investors should note that the upgrade in valuation grade to attractive is primarily driven by the improved P/E and PEG ratios, which now better reflect ITC’s earnings stability and dividend yield. The company’s strong ROCE and ROE metrics further underpin its capacity to generate shareholder value despite recent stock price weakness.

Comparative Valuation: ITC Versus FMCG Peers

When benchmarked against FMCG peers, ITC’s valuation multiples stand out as relatively conservative. Many FMCG companies trade at P/E ratios exceeding 20, with premium valuations justified by faster growth trajectories or niche market leadership. ITC’s P/E of 16.26 and PEG of 0.73 suggest that the market is discounting some of its growth challenges but rewarding its consistent profitability and cash flow generation.

The EV/EBITDA multiple of 13.94 is also competitive, indicating that ITC’s enterprise value is aligned with its earnings before interest, tax, depreciation and amortisation. This ratio is particularly relevant for investors assessing capital efficiency and operational leverage. ITC’s EV to capital employed ratio of 7.09 further highlights efficient utilisation of capital resources, a key factor in sustaining long-term returns.

Price Range and Market Sentiment

ITC’s current share price of ₹313.85 is close to its 52-week low of ₹302.00, significantly below the 52-week high of ₹465.20. This wide trading range reflects heightened volatility and investor caution amid sectoral headwinds and macroeconomic uncertainties. The stock’s day change of -0.90% on 5 February 2026 indicates continued pressure, although intraday trading between ₹311.25 and ₹314.90 suggests some price support near current levels.

Given this context, the shift in valuation parameters towards attractiveness may signal a turning point for investors seeking value in large-cap FMCG stocks. The combination of a reasonable P/E, strong dividend yield, and robust returns on capital provides a compelling case for considering ITC as a core portfolio holding, especially for those with a medium to long-term investment horizon.

Investor Takeaway: Balancing Valuation and Growth Prospects

While ITC’s valuation metrics have improved, investors must weigh these against the company’s recent stock underperformance and the broader FMCG sector’s challenges. The company’s strong fundamentals, including a high ROCE of 46.73% and ROE of 33.44%, underpin its ability to generate consistent earnings and dividends. However, the subdued price performance relative to the Sensex over one and three-year periods highlights the need for cautious optimism.

For value investors, ITC’s attractive P/E and PEG ratios, combined with a dividend yield exceeding 4%, offer a compelling entry point. The upgrade in Mojo Grade to Hold reflects a stabilisation in outlook, suggesting that the stock may be poised for a recovery if sectoral headwinds ease and growth initiatives bear fruit.

Conversely, growth-oriented investors may find ITC’s slower earnings momentum less appealing compared to higher-growth FMCG peers. The company’s valuation, while attractive, may not fully compensate for the risks associated with evolving consumer trends and regulatory pressures.

Conclusion

ITC Ltd.’s recent shift in valuation parameters from fair to attractive marks a significant development for investors assessing the stock’s price appeal. The company’s P/E ratio of 16.26, PEG ratio of 0.73, and dividend yield of 4.14% position it favourably against historical and peer benchmarks. Despite recent stock price weakness and underperformance relative to the Sensex, ITC’s robust returns on capital and improved valuation grade suggest a stabilising outlook.

Investors should consider ITC as a potential value play within the FMCG sector, balancing its strong fundamentals against ongoing market challenges. The Mojo Grade upgrade to Hold reinforces this view, signalling that the stock is no longer a sell but requires careful monitoring for further catalysts that could drive price appreciation.

Ultimately, ITC’s valuation attractiveness offers a renewed opportunity for investors seeking a blend of income and moderate growth in a large-cap FMCG stock, provided they remain mindful of sector dynamics and broader market conditions.

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