Should D-Street bulls continue their smoky affair with ITC or hold on to good, old HUL? - Economic Times

In a listless market today, if someone’s smiling big, it’s ITC’s investors as th e company’s market capitalisation hit the Rs 5 trillion-mark following steady gains over the last 1 year.

Shares of ITC have outperformed not only the benchmark index Nifty 50, but also the fast moving consumer goods sector bellwether Hindustan Unilever.

While ITC shares have given more than 50% returns in the last 1 year, those of HUL have given about 18% returns.

The rally has indeed narrowed the valuation gap between ITC and HUL, but the former is still available at a much more reasonable price compared to the latter.

ITC's price-to-earnings multiple is 33 times, whereas that of HUL's is nearly twice at 67 times.

“ITC outperforms HUL due to its consistent success in quarterly figures, which take cues from demand recovery in the cigarette and hotel businesses, cost optimisation, and trending sales momentum in the FMCG industry,” said Ravi Singh, vice president and head of research, Share India.

Market experts expect further gains in the stock and see valuations sustaining in the backdrop of strong earnings growth. “ITC's valuation remains attractive compared to other consumer staples firms, even at the current all-time high, making it a strong choice for investors,” said Sonam Srivastava, founder, Wright Research.

Both the cigarette and FMCG sectors are expected to witness double-digit earnings growth in FY24, driven by good margin recovery in the FMCG business, Srivastava said.

Compared to ITC, there is less clarity on earnings growth for HUL, some analysts said, backing their rationale on preferring the cigarette major.

HUL is experiencing stiff competition in cosmetics, shampoo, and toiletries segments, and the arrival of several start-ups and large retail competitors has also made it tough for the FMCG major, said Ravi Singhal, CEO, GCL Broking.

On the other hand, ITC maintains dominance in all major segments such as cigarettes, hotels, paper, and agriculture, Singhal added.

Singhal expects ITC stock to continue to outperform HUL and has a 1-year target price of Rs 470.

Ravi Singh of Share India Securities also recommends investors to retain their holdings and aim for a target of Rs 420 in the near term as the overall trend remains positive.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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Should D-Street bulls continue their smoky affair with ITC or hold on to good, old HUL? - Economic Times
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