ET Intelligence Group: Announcing their results for the quarter to December a day before the Budget, HUL and ITC are likely to see the performance of their stocks shaped by the announcements in the budget for the next financial year more than their respective quarterly performances.
While the HUL stock has remained buoyant in recent weeks, the reverse is the case with ITC. The latter’s stock hit a 52-week low on Tuesday. After two-and-a-half years of steady taxation, investors are factoring in a possibility of duty rate hike in cigarettes in the upcoming Budget, has dented the ITC stock. It is trading at a price to earnings multiple of 20 times its trailing four-quarter earnings.
The company is expected to report a 8.5 per cent increase in revenue to Rs 12,078 crore and an ebitda margin of 38.7 per cent. Volume growth in the cigarette as well as the FMCG business are the key things to watch out for. Profitability of the non-cigarette businesses would also be watched. Data from Bloomberg reveals that 34 of the 38 analysts tracking the company have a buy recommendation on it.
However, despite the predominant bullish view among the analysts, the stock has been down 15 per cent in the past one year, making it the worst performing among stocks of large-cap fastmoving consumer goods (FMCG) companies. The view on the stock will get clearer after the Budget. If tax rates on cigarettes remain unchanged, it would trigger a relief rally in the short term.
The HUL stock, in contrast, has gained 18 per cent in the past one year, with 7 per cent gain this month. The company is expected to report 7 per cent growth in revenue to Rs 10,033 crore with ebitda margin of 22.3 per cent. The volume growth for the quarter is likely to be 3-4 per cent given the high base of 10 per cent growth in the year-ago quarter and slowdown in rural consumption. The company’s stock is trading at a price to earnings multiple of 68 of last four trailing quarters.
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The steep valuation has not dented investors’ sentiment much. Only three of the 43 analysts tracking the company’s stock have a sell recommendation on it, as per the data from Bloomberg. Likely measures on boosting consumption in the impending Budget would reinforce investors’ bullishness.
Source: Economic Times
