Last Updated: Dec 11, 2020, 08:27 AM IST

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Synopsis

If anyone is buying ITC with a perspective of restructuring, they should not be

buying it, says Sandip Sabharwal.

ETMarkets.com

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ITC Ltd.

216.30

3.60 (1.69%)

UPL Ltd.
435.00

-3.45 (-0.79%)

State Bank of Ind...

272.45

2.90 (1.08%)

In terms of pure valuation, ITC NSE 1.69 % trades at a huge discount to other FMCG stocks. It could
continue to trend up if they keep on performing well on the FMCG business as they did the last quarter,
says Sandip Sabharwal of asksandipsabharwal.com.

On ITC
We bought ITC at around Rs 155 and we exited it on Thursday because it was more a bet on 25% target
return which it achieved over a period of 40 days. In terms of pure valuation, it trades at a huge discount
to other FMCG stocks for sure. It could continue to trend up if they keep on performing well on the
FMCG business as they did the last quarter.

But given the fact that so many people have burnt their fingers in trying to predict stronger growth and
earnings revival in ITC in the past and the fact that their capital allocation has been poor in terms of the
amount of money they put into hotels, etc, in the past. That creates some doubts in the minds of
investors. But I would think the stock still has value.

On possibility of ITC, HUL demerging to reveal true potential

If anyone is buying ITC with a perspective of restructuring, they should not be buying it. I do not think
that is happening because the other businesses cannot sustain without the cigarette business being
there. However, if you are buying it on a valuation paradigm that it is very cheap stock and ultimately
the FMCG business will turn around and that will lead to a rerating that is a valid thesis that could play
out and to that extent I think whoever is buying with that logic could get rewarded if that logic plays out.

In terms of HUL, there is nothing really to complain about. They have done well in their categories in
which they are market leaders. They have only lagged in coming out with newer products and new
categories. Overall they have done reasonably well. HUL and ITC are totally at different ends of the
paradigm.

On steel stocks

Among the metals, steel has been the strongest story and the prices have continued to trend up. Now
they have moved up to such levels now we need to see whether that impacts demand or not and if it
does impact demand. whether the prices could again fall off. Normally commodity-listed companies are
typically leveraged to the underlying commodity prices. As underlying commodity prices move up, the
stock prices of those companies move up as a multiple of that. Given the overall global scenario in terms
of economic growth outlook, it is possible that we could have reached a phase where further price gains
will be tough in case of most commodities except for oil and surely for steel. In that case, there is a
possibility that steel stocks could also peak out in the near term. We could see correction from the
current levels before we could again look at buying. I think that they have had a huge run up and at this
price it is tough to find value.