ITC Vs M&M: Two Nifty stocks rally over 50% in last one year; should you buy these stocks now?

At a time when the domestic equity market has been struggling from rising interest rates, sustained outflows by overseas investors and the ongoing geopolitical tensions between Russia and Ukraine, two stocks from the Nifty 50 pack rallied over 50 per cent in the past 12 months.

Stock performance

FMCG major ITC Ltd emerged as the top gainer in the pack. Shares of the company rallied 77 per cent to Rs 382.20 on February 27, 2023, from Rs 215.85 on February 28, 2022. Automobile major Mahindra & Mahindra Ltd (M&M) is the next big gainer on the list. Shares of M&M gained 59 per cent to Rs 1257.40 from Rs 790.85 during the same period. On the other hand, the benchmark 50-share Nifty pack gained just 3.57 per cent during the same period.

Report card

For the nine months ended December 31, 2022, ITC reported 26.87 per cent year-on-year growth in net profit on a 21.21 per cent YoY rise in gross sales. The top line and bottom line of M&M grew 38.40 per cent and 76.15 per cent, respectively, during the same period.

Segment-wise, the revenue of ITC from the cigarette business witnessed a jump of 22.15 per cent YoY to Rs 23,185.20 crore for the nine months ended December 31, 2022. Hotels, agribusiness, paper & paperboard also witnessed a growth of 99.99 per cent, 22.71 per cent and 25.75 per cent, respectively, during the same period.

On the other hand, the automotive revenue of M&M increased by 75.66 per cent YoY during April-December 2022. Revenue from farm equipment, financial services, hospitality and real estate also grew 14.96 per cent, 9.19 per cent, 19.57 per cent and 50.70 per cent YoY, respectively, during the same period.

Analysts view

Market watchers on Dalal Street hold mixed views on ITC and Mahindra & Mahindra after the recent run-up. Deepak Jasani, Head of Retail Research, HDFC Securities Ltd said, “ITC has risen sharply over the last year as its cigarette volumes started to grow and the feared tax hikes did not materialise in the Union Budget. Also, its paper and hotel divisions performed well in line with industry tailwinds. However, its FMCG division suffers from a consumer spending slowdown. The current prices mostly reflect the potential of the stock for the next 1-2 quarters with little upside left.”

Sharing his views on M&M, Jasani said, “The auto major also had a dream run over the last year as its UV and tractor segments both did very well. Its subsidiaries had a mixed period with most companies facing headwinds. However, we think the stock still has some upside left as the subsidiaries come out of a challenging period.”  

Pankaj Pandey, Head-Research, ICICIdirect holds a constructive view on ITC and M&M. “Given, the tax increase in budget 2023 is insignificant; ITC would continue to witness strong volume growth in cigarette business in future. ITC has also benefited from strong growth in hotels, paperboard & FMCG businesses with significant improvement in margins due to strong hotel occupancies, higher pricing growth in paperboard and operating leverage in FMCG business. Also, agribusiness margin uptick in absence of low margin commodities (wheat & rice) is also aiding growth.”

Pandey also believes that M&M’s renewed pivot towards efficient capital allocation (vision for over 18 per cent RoCE at consolidated level) and aggressive EV launch pipeline are structural positives. “Furthermore, sturdy demand prospects across its product profile and robust order book are other key positive factors,” he said.

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