What will make Aswath Damodaran give ITC better valuation?

MUMBAI: For professor Aswath Damodaran, popularly known as the “Dean of Valuation”, companies that know their age create value, and those that don’t destroy it. ITC, the country’s largest cigarette maker, falls in the latter category, according to the professor of finance at the Stern School of Business, New York University.

The self-confessed “Kim Kardashian of Finance” said he would ascribe higher valuation to ITC if it did nothing to grow. ITC can best be described as a human being in their old age — a company that should be destined to a slow death no matter how many times it tries to reinvent itself, he said. “If you are a company like ITC, your best days are behind you. You can dance around it as much as you want but your central business is tobacco, and no matter where you are in the world, your future is essentially more downhill than uphill,” Damodaran said at the NSE-NYU Conference on Indian Financial Markets, which was organised online between December 8 and 10.

ITC’s biggest source of profit and cash flow is still the decades-old cigarette business. The company has been in the work for close to three decades to rediscover its heydays through multi-billion dollar investments in hotels, FMCG and other businesses.

Damodaran said he could get a higher value per share of ITC if the company ceased to grow, even if it meant that it would eventually die. “I actually value ITC if they took a different path, which is to stop trying to grow. That hotel business is a nice ego business but it’s a terrible place to be in,” he said.

Growth for the sake of growth was a horrific objective for the guru of valuation. He said companies should be allowed to die or else they would hoard capital that could be used by more productive and upcoming entrepreneurs.

“Don't try for reincarnation. Reincarnation of companies is more an illusion than reality. The notion that companies, which are a legal entity, should be sustainable is absurd,” Damodaran added.