Nifty’s 2% Tumble Vs. ITC’s 4% Jump: Analysing The Anomaly
No matter how long you have been trading or investing, the market never fails to surprise you. Take the ITC anomaly that unfolded on May 19th. Despite Nifty falling by 2% overnight, ITC gained over 4% in the morning.
ITC shone in a red market, reporting an 11.80% YoY rise in standalone net profit at ₹4,190.96 crores for the March quarter on a 16.02%, YoY rise in revenues at ₹16,426 crores. The company also declared a dividend of ₹6.25/share, taking the full-year dividend to an impressive ₹11.5/share.
Despite the market slump, investors were bullish on ITC, not just because of its Q4 earnings beat but also on the hope that the company would fare better than its peers in an inflationary scenario.
We cannot ignore the fact that ITC’s high-margin cigarette segment just saw a 9% jump in Q4. Revenue from the cigarette business grew by 9.96% YoY to ₹6,443.37 crores. Non-cigarette FMCG revenue stood at ₹4,141.97 crores, up 12.32% YoY. Interestingly, both the cigarette volumes and profits were better than their respective forecasts.
On the other hand, ITC’s beat in the FMCG business was driven by both growth and margin. As for its hotel business and agribusiness, both sectors have posted strong revenue growth of 35.39% and 29.60%, respectively.
Note that ITC’s attractive quotient can also be attributed to its steady growth in other segments and a 4-5% dividend yield during the market fall, which can help investors earn if the bear market rises sharply here on due to multiple factors like inflation, the Russia-Ukraine war, China’s zero-COVID policy etc.
While most of its peers witnessed headwinds, ITC remained unscathed, with each segment maintaining stable margins, especially cigarettes and FMCG, which exceeded expectations, even when the FMCG sector experienced a growth decline and a global raw material crisis.
Given these stakes, multiple brokerage houses have raised their targets and rated the stock in varying degrees, from neutral to overweight. Technically speaking, the stock has seen 55 million in volume, the highest since March 2022. So far, the maximum price the stock has touched is ₹279.25/share, highest since July 2019. The stock has crossed its major supply zone of ₹265. The all-time-high is ₹367.7 and the next resistance could be at the levels of ₹310-₹320.
Fundamentally speaking, ITC has been maintaining a healthy ROE of 23.71% & ROCE of 31.13% over the past 3 years. The company is debt-free and has a healthy interest coverage ratio of 292.21. ITC has also succeeded in maintaining an effective average operating margin of 33.90% in the last 5 years.
Manvendra Pratap Singh is the Founder and CEO of Trinkerr. He is an IIT Kanpur-IIM Lucknow alumnus and an investor with 15+ years of experience.