Best Tobacco Stocks in India: Despite their criticism, sin stocks have always attracted abundant investment. This is primarily because of the potential their products have held despite the curbs placed by the government. In this article, we take a look at another sin sector – the Indian tobacco industry and also take a look at the Best Tobacco stocks in India. Keep reading to find out!
Table of Contents
Tobacco Industry – Overview
When it comes to agriculture, tobacco is one of the most important crops in India. This may come as a surprise to many that tobacco was only introduced in India in the 17th century by the Portuguese.
Today, India has more than 267 million tobacco users. India is the second largest tobacco producer after China. Currently, 28.6% of the adult population (+15 yrs) uses tobacco products and 8.5% of the population under 15 years old uses tobacco in India.
This makes tobacco a very important crop as it is easy to grow and also economical. Its crop is drought resistant and is of short duration and can be grown on varying soils, unlike other crops.
India is also the 2nd largest exporter of tobacco in the world after Brazil. The total exports during the financial year 2021 stood at $923.8 million.
Despite all these advantages tobacco companies bring to the table a lot more problems. The industry is regularly faced with roadblocks and their products come with lethal health warnings.
Studies also state that tobacco-related deaths are up to 3 times higher than other products. In addition to this, the government has been devoted to reducing the possible consumption of tobacco by heavily taxing its products.
Tobacco companies are now adapting by entering other business segments. Companies are now pouring billions of dollars into producing nicotine products that do not come with such health risks.
Best tobacco stocks in India
Now let us take a look at the Best tobacco stocks in India:
Best Tobacco Stocks In India #1 – ITC
| Face Value (₹): 1 | ROE (%): 24.8% |
| Market Cap (₹ Cr): 475,000 | Net Profit Margin (%): 25.5 |
| EPS (₹): 14.7 | Current Ratio: 2.85 |
| Stock P/E (TTM): 26.2 | Debt to Equity: 0 |
| Dividend Yield (%): 2.97 | Promoter’s Holdings (%): 0 |
Founded in 1910, ITC is today the biggest player in the Indian tobacco industry. The company is partly owned by British American Tobacco and dominated holding a 79% share of the total sales volumes.
Its range of cigarette brands includes Insignia, India Kings, Classic, Gold Flake, Wills Navy Cut, Players, Berkeley etc.
But ITC today cannot be mistaken as a cigarette company alone. The company is involved in 13 businesses across 5 segments. These include FMCG, hotels, software, packaging, agribusiness etc. among others
If we take a look at the financials of ITC, barring 2021, its profits have increased from Rs 10,477 crore in 2017 to Rs 15,503 crore in 2022.
The company’s debt-equity stands at 0 which is another good sign. The company also has maintained a good dividend payout of 93% with a dividend yield of 2.97%. The stock trades at a PE of 26.2 which is slightly lower than the industry average PE of 31.
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Best Tobacco Stocks in India #2 – Godfrey Phillips
| Face Value (₹): 2 | ROE (%): 13.6 |
| Market Cap (₹ Cr): 9,300 | Net Profit Margin: 14.0% |
| EPS (₹): 124 | Current Ratio: 1.65 |
| Stock P/E (TTM): 14.4 | Debt to Equity: 0.12 |
| Dividend Yield (%): 1.51 | Promoter’s Holdings (%): 72.8% |
Godfrey Phillips, founded in India in 1936 was originally based out of London in 1844. In 1968 international giant Philio Morris took over the company.
This allowed the company to sell the globally renowned brand Marlboro. Today the company is the flagship company of the Modi Enterprises group.
The company produces a variety of cigarettes, smoking tobacco and cigars. In addition to this, the company has business interests in pan masala, chewing and confectionery products.
If we take a look at the company’s financials, its profits have been on an increasing trend from Rs. 137 crores in 2017 to Rs. 385 crores in 2020. Its profits suffered slightly in 2021 when its profits dropped to Rs. 377 crores, but has shown a recovery with a net profit of Rs 438 crore in FY22.
The company also has a healthy 3 yr profit CAGR of 33.26%. The company has a minimal debt with a debt-equity ratio of 0.12. The stock trades at a PE of 14.48 which is below its industry average.
Best Tobacco Stocks in India #3 – VST Industries
| Face Value (₹): 10 | ROE (%): 31.7 |
| Market Cap (₹ Cr): 4,933 | Net Profit Margin: 27.1% |
| EPS (₹): 224 | Current Ratio: 0.76 |
| Stock P/E (TTM): 15.4 | Debt to Equity: 0.0 |
| Dividend Yield (%): 4.40 | Promoter’s Holdings (%): 32.2 |
Founded in 1930, VST Industries is headquartered in Hyderabad and is a subsidiary of British American Tobacco (BAT). The company’s brands include Total, Charms, Charminar, Editions, Special, and Moments.
It is also known that the last Nizam of Hyderabad used to smoke the company’s Charminar cigarettes.
Similar to other companies on this list the company’s revenues have followed an upward trend from Rs 922 crore in 2017 to Rs 1,239 crore in 2020 suffering in 2021 and 2022.
Its profits have also followed an increasing trend from Rs. 182 crores in 2018 to Rs. 320 cr in 2022. The company has achieved a 3-year profit CAGR of 12.18%.
The company maintains zero debt and has a dividend yield of 4.40%. The company’s stock trade at a PE of 15.4 which is below the industry average.
List of all Tobacco Stocks In India
| Company | Market Cap (in Rs Cr) |
|---|---|
| ITC | 475,000 |
| Godfrey Phillip | 9,300 |
| VST | 4,933 |
| The Indian Wood | 163 |
| Golden Tobacco | 111 |
| NTC Industries | 98 |
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In Closing
The Indian tobacco industry comes with a multitude of challenges with several organizations set up specifically to limit the use of its products. The government in particular is setting up new challenges to curb its use.
Investors must take note of this before making significant investments in tobacco companies. That’s all for this post on the Best Tobacco stocks in India, let us know what you think in the comments below. Happy Investing!
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