Itc Losing Its Classic-Stock Reputation
A depressing first quarter performance seems to have compounded the woes of the ITC stock. The scrip has been gradually losing sheen for investors over the past few months.
In terms of price alone, the scrip has lost nearly 30 per cent since it touched a new 52-week high of Rs 830 in May this year. Trading volumes at the bourses have also remained stagnant throughout the calendar year. Except for a couple of trading sessions when volumes crossed the one crore mark, daily average volumes have been in the range of 30-60 lakh shares or even lower.
This has affected the speculative activity in the share too. "The ITC scrip seems to have lost its volatility of late. Earlier, there would be a fluctuation of around Rs 20-Rs 30 in a single trading session almost every other week. But of late, the volatility has died down.
These sharp fluctuations are now being witnessed at the Satyam Computer and Zee Telefilms counters. Also, because of good intra-day price movements, punters are now gradually moving over to these counters," says a BSE broker.
The ITC scrip has traditionally enjoyed a high discounting in the market because of its status as a multinational and its stable revenue streams (undisturbed by economic cycles) which makes it a great defensive stock for investors.
However, this has been changing over the past year and the stock's discounting has dipped sharply.
Whereas the stock was trading at a price-earnings (P/E) ratio of about 34 last August, it is currently quoting at a P/E of around 25.
"One cannot judge a stock like ITC, the market leader in the cigarette sector, on the basis of P/E (price to earning ratio) alone. If ITC, at a current P/E of 25, is a sell, then by that logic MNC stocks quoting at P/Es of over 40 are highly overvalued too," says Hrikesh Anjaria, analyst Khandwala Securities.
Some analysts feel that this is only a temporary phenomenon. "The hike in cigarette prices is much more than the increase in excise duty announced in the budget. However, because of the delayed budget, the increase in prices have really not been reflected in the first quarter results. Once the market sentiments improve, this scrip too will stage a sharp turnaround. Although market players are apprehensive about the company's growth, the scrip is not likely to under-perform the Sensex," he adds.
However, first quarter results which were lower than analysts expectations seem to have left a bitter taste in the mouth of market players.
"It is premature to judge the stock purely on its first quarter results. ITC is trying to move up the value chain by sacrificing volume growth. It is trying to focus on the upper segment of smokers where it has more leeway in adjusting prices rather than the lower segment which is very sensitive to excise duty hikes," says an analyst.
Another reason for the change in outlook on the stock seems to be the lack of transparency in the functioning of the company, analysts say.