It's hard to find stocks that are attractively valued from the Sensex space, given that almost every stock from the index has rallied. However, there are a few that may still be attractive bets given their under performance. One such stock is the stock of ITC.
ITC: A big player in the FMCG space
The company was largely known as a cigarette manufacturer, but, has now become a very big player in the FMCG space. With brands like Aashirvaad Atta, Sunfeast, Bingo, Vivel, Fiama, Savlon, B Natural Yippee!' Noodles' etc., ITC has done well in terms of creating solid robust brands. Of course, not to mention hotels and paper and paper boards, where it is the largest player.
The FMCG business is the one that investors are bullish on. For the quarter ending Sept 30, 2021, the FMCG businesses delivered resilient performance growing on a high base quarter which witnessed exceptional surge in sales (Q2FY21 up by 19%). In fact, the FMCG segment saw EBITDA up 23% and 82% respectively over Q2FY20.
ITC: Good on dividend yields
At the current market price of Rs 222, the stock of ITC gives a dividend yield of nearly 5%, considering the dividend of Rs 5.5 per share that it pays. Going ahead we expect dividends to be better as the company's performance across segments like FMCG, Hotels and Paper gets better.
Good quarterly performance by the company
ITC delivered strong performance across all operating segments during the quarter ending Sept 30, 2021. Gross Revenue stood at Rs. 13,356.15 crores representing a growth of 11.1% y-o-y while net profits at Rs. 3,697.18 crores grew by 13.7% y-o-y. Earnings Per Share for the quarter was Rs. 3.00 (previous year Rs. 2.64).
Valuation and view on ITC
The problem for the stock of ITC has been its under performance. While the financial performance has not been bad, the stock just does not seem to perform or more in line with the Sensex and the Nifty. For some reason the stock has not attracted the interest of fund managers. However, if in the next few years, if the continues to grow at the pace it is growing, there is no reason to believe that the stock will under perform.
On a conservative estimates, ITC can report an EPS of Rs 15 for 2022-23. Applying a p/e of 22 times, which is the average for Sensex companies at the moment, the stock should trade at least at Rs 330. Apart from this the markets are trading at extremely high levels and defensive stocks in the portfolio cold be a good bets. We suggest a buy on the stock of ITC given strong diversified brands, low or negligible debt and decent dividend yields.
Greynium Information Technologies and the author are not liable for any losses caused as a result of decisions based on the article. Investing in equities is risky and investors are advised to do their own research. The author and his family do not own the shares of ITC mentioned above.