Of the 53 analysts tracking diversified conglomerate ITC and consumer goods company HUL, 46 have recommended a ‘buy’ on ITC while only seven are bullish on HUL, according to the latest data from Bloomberg.
Despite the recent sell-off seen in the defensive stocks, ITC remains the best-performing defensive stock in the Sensex as it is still up 7% compared to a year ago. The cigarettes-to-consumer goods conglomerate’s performance in the quarter to March validates its position as the favourite FMCG company among investors. ITC has posted 12% revenue growth, 18% growth in net profit and 35% operating margin with expansion of 2 percentage points amid macroeconomic headwinds such as inflation and slower spending. Although the company’s revenue growth in the quarter was slightly muted on account of slippage in cigarette volumes, its overall performance was in line with expectations of traders. The revenues of ITC’s breadand-butter business of cigarettes grew 12.6%, with a strong earnings growth of 21% mainly due to the company’s decision to pass on the increase in excise duty. While cigarette volumes dropped, the segment registered a margin expansion of 4.3 percentage points to 62.6%. The FMCG business posted a recordhigh segment profit of .` 43 crore and managed to break even for the year ended March 2014. The hotels business continued to underperform as it was bogged down by increased supply and lower occupancy on account of weak economic environment. However, the profitability of this business improved significantly in the three months to March. While the paper business posted 19% revenue growth, the high input cost led to flat growth in earnings. The agro trading business posted 8% growth in revenues and 14% rise in earnings. With its dominance in the cash-generating business of cigarettes, ITC appears better placed than its peers in the FMCG industry. Investors need to watch out, though, for any increase in excise duty by the new government and any deficiency in monsoon that may adversely affect the company’s performance in the near-term.