ITC stock outperforms peers in March

The stock of cigarette to hotels conglomerate ITC has gained around 19 per cent thus far in March, far outperforming its peers like Hindustan Unilever, which has lost 10 per cent during this period.
 
Peers such as Godrej Consumer Products, Britannia, Nestle India, Dabur India and Marico, too, have lost 7 per cent to 11 per cent in March.
While the Nifty FMCG index has mostly been flat, the Nifty50 lost over 2 per cent month-till-date (MTD).

The fall in most FMCG stocks, analysts said, is on account of rising raw material prices that gained ground on the back of Russia-Ukraine war. Over the last quarter, prices of commodities like palm oil, crude oil and skimmed milk powder are up 23 - 42 per cent.
 
Crude-linked derivatives currently witnessing single digits inflation are likely to catch up with a lag of two-three months.
 
So, what’s happening with ITC then?

Analysts say the company is relatively insulated as it has other verticals such as hotels and cigarettes, which cushion the blow to its FMCG segment from the sharp rise in input costs.
 
What’s also working for ITC is the fact that the government has kept the excise duty on tobacco unchanged in the Union Budget for fiscal 2022-23 (FY23), and the cigarette volumes are steadily climbing.

That apart, lifting of most Covid restrictions post the third-wave has led to an increase in mobility, which augurs well for ITC’s hotel business.
ITC’s paper business segment, too, is likely to do well in the backdrop of tight paper supplies in the domestic market and a possible surge in paper exports.
 
Analysts such as Vinay Khattar, head of research at Edelweiss Wealth Research, believe all ingredients are in place for the stock to now catch up with the markets.
 
The positives, he said, will lead to an earnings CAGR of 12 per cent in FY22–24 against a mere 7 per cent in the last five years.

Cigarette volume should revive at a CAGR of 5 per cent during FY22-24 as against a CAGR of -1 per cent in FY11–21. FMCG’s EBITDA margin likely to scale up to higher single digits; while the hotel, paperboard and agri-commodities businesses are set to revive, said Vinay Khattar, head of research at Edelweiss Wealth Research, in a recent report.

Technical analysts, too, see the stock higher in the next three months, provided the overall market sentiment does not take a knock due to the ongoing political situation. 

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Twitter: @Pun_ditry