A STUDY ON COST OF CAPITAL AND PROFITABILITY ANALYSIS AT ITC LIMITED

Abstract

Cost of capital is a fundamental concept in corporate finance, representing the minimum return a company must earn on its investments to satisfy the expectations of its capital providers. For conglomerates like ITC Limited, which operates across cigarettes, FMCG, hotels, paperboards, and agribusiness, optimizing the cost of capital while sustaining strong profitability is a complex strategic challenge. This paper examines the cost of capital structure and profitability performance of ITC Limited over the period FY 2019–2024, analyzing the Weighted Average Cost of Capital (WACC), cost of equity, cost of debt, debtequity mix, and their relationship with key profitability indicators. Secondary data sourced from ITC's annual reports, BSE filings, and CMIE Prowess database is analyzed using ratio analysis, trend analysis, and correlation methods. Primary data was collected through structured questionnaires administered to 25 finance professionals and MBA students. Findings reveal that ITC's conservative capital structure—predominantly equity-financed with minimal long-term debt—results in a relatively higher WACC, but its strong brand portfolio and operating leverage deliver profitability ratios significantly above FMCG sector averages. The study recommends judicious use of debt financing to lower WACC, further diversification of FMCG revenues, and continued capital efficiency improvements to enhance Return on Capital Employed (ROCE) and shareholder value.