As Warren Buffett rightly said, “The stock market is a device to transfer money from the impatient to the patient." If you're a shareholder of ITC, you will surely realise the value of this quote today. Amid the astounding market rally, shares of ITC zoomed 8 per cent to hit an intraday high of Rs 233.30 on BSE on Thursday.
At 12:16 hours, the 30-share BSE index was trading 252 points or 0.43 per cent higher at 58,975.82, and the broader NSE Nifty was up 61.75 points or 0.35 per cent to 17,581.20.
The undervalued stock opened a tad higher at Rs 216.40 against the previous close of Rs 216 on BSE. With a market capitalisation of Rs 2,84,414 crore, the shares of ITC stand higher than 5-day, 20-day, 50-day, 100-day and 200-day moving averages. The large-cap stock has risen 10.5 per cent since the beginning of this year and has delivered a 28 per cent return in the past 12 months.
"ITC has a strong track record of generating free cash flows, mainly due to its cigarette business, which has been a cash spewing machine. The cigarette volumes will recover once the Covid threat subsides," Akhil Rathi, Vice President Advisory at Marwadi Shares and Finance Limited told BusinessToday.In.
"The management has guided that CAPEX in the FMCG and hotels segment is almost over and the focus would now be on scaling these businesses. This would increase the return ratios. Also, now due to lower CAPEX requirements ahead, the company has come up with a new dividend policy, and the payouts will be around 80-85% (higher than the decadal average of ~67%), making ITC’s dividend yield one of the best in the FMCG industry," he noted.
"High cash reserves also give headroom for strategic acquisitions. We expect this strong momentum to continue in the near future. A gradual FMCG business turnaround with improving profitability remains another important catalyst for stock outperformance over the medium term," he added.
CLSA has also maintained a "buy" call on the stock with the target price of Rs 265 per share. The brokerage house noted that the valuation is compelling with a record-high PE discount to the FMCG average and a 6 per cent dividend yield.
According to MarketsMojo, the company has a low Debt to Equity ratio (avg) at -0.32 times and has high management efficiency with a high ROE of 22.24%. The stock is trading at a premium compared to its average historical valuations and with a ROE of 21.8, it has a Fair valuation with a 4.4 Price to Book Value.
Last year, ITC shares fell over 12 per cent even as the Sensex gained nearly 16 per cent. In 2019 as well, ITC lost 15.62 per cent when Sensex moved up 14.38 per cent. However, the dividend yield of ITC is better when compared to its peers. As per data from Trendlyne, the two-year dividend yield of ITC is 4.9 per cent, while the same for Hindustan Unilever (HUL) is 1.2 per cent.
The company reported a 28.6 per cent year-on-year (YoY) rise in its net profit at Rs 3,013 crore during the April-June quarter. Net profit in the year-ago period stood at Rs 2,343 crore. ITC's revenue from operations rose 36 per cent YoY to Rs 12,959 crore during the quarter ended June 30, 2021.
The 'others' segment of FMCG, which consists of branded packaged foods businesses, snacks, dairy and beverages, education and stationery, safety matches and agarbattis, among others, reported a 10.4 per cent growth in revenue to Rs 3,726 crore. The growth in the segment was driven by higher demand for health and hygiene and discretionary products.
The hotels segment, one of the worst affected by the pandemic, registered over five-fold growth in revenue to Rs 127 crore. ITC said the progressive recovery in the segment was impacted by the second wave, but business is rebounding with the easing of restrictions led by leisure destinations, staycations and weekend getaways.
Meanwhile, the market cap of BSE-listed firms crossed the Rs 260-lakh crore mark for the first time after Sensex and Nifty hit their all-time highs in early trade today.
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