ITC and M&M: Two Nifty stocks have gained over 50% in the previous year; should you purchase these stocks now?
FMCG behemoth ITC Ltd emerged as the pack’s highest gainer. The company’s shares increased by 77% to Rs 382.20 on February 27, 2023, from Rs 215.85 on February 28, 2022.
At a time when increasing interest rates have hampered the local equities market, continued withdrawals from outside investors, and ongoing geopolitical tensions between Russia and Ukraine, two Nifty 50 firms have gained more than 50% in the last year.
FMCG behemoth ITC Ltd emerged as the pack’s highest gainer.
The company’s shares increased by 77% to Rs 382.20 on February 27, 2023, from Rs 215.85 on February 28, 2022. Mahindra & Mahindra Limited (M&M) is the second biggest gainer on the list. M&M shares rose 59% to Rs 1257.40 from Rs 790.85 over the same time. On the other hand, the benchmark 50-share Nifty pack gained only 3.57 percent within the same period.
ITC reported a 26.87 percent year-on-year increase in net profit for the nine months ended December 31, 2022, on a 21.21 percent YoY increase in gross sales. Over the same period, M&M’s top and bottom lines increased by 38.40% and 76.15%, respectively.
ITC’s income from the cigarette industry increased by 22.15 percent year on year to Rs 23,185.20 crore for the nine months ended December 31, 2022. Over the same period, hotels, agriculture, and paper & paperboard increased by 99.99 percent, 22.71 percent, and 25.75 percent, respectively.
M&M’s automotive revenue, on the other hand, climbed by 75.66% year on year between April and December 2022. Over the same year, farm equipment, financial services, hotels, and real estate revenue increased by 14.96%, 9.19%, 19.57%, and 50.70%, respectively.
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During the recent run-up, market observers on Dalal Street have mixed feelings about ITC and M&M. “ITC has gained dramatically over the previous year as its cigarette volumes began to climb and the predicted tax hikes did not materialize in the Union Budget,” said Deepak Jasani, Head of Retail Research at HDFC Securities Ltd. In addition, its paper and hotel sectors also fared strongly, reflecting industry tailwinds. Yet, its FMCG segment is suffering from a slump in consumer spending. The current prices mostly reflect the stock’s potential for the next 1-2 quarters, with minimal upside remaining.”
“The car giant has had a fantastic run over the previous year as its UV and tractor categories both fared extremely well,” Jasani added of M&M. Its subsidiaries had a mixed year, with the majority experiencing challenges.
But, we believe the stock still has considerable potential as the subsidiaries emerge from a difficult phase.”
Pankaj Pandey, Head-Research at ICICIdirect, has a positive outlook for ITC and M&M. “Since, the tax rise in budget 2023 is minimal; ITC will continue to enjoy robust volume growth in cigarette sector in future. ITC has also benefited from excellent growth in the hotel, paperboard, and FMCG industries, with considerable improvement in margins as a result of better hotel occupancies, stronger price growth in paperboard, and operating leverage in the FMCG company. Another contributing to growth is an increase in agribusiness margins in the absence of low margin commodities (wheat and rice).”
Pandey also sees structural benefits in M&M’s increased focus on efficient capital allocation (goal for over 18% RoCE at the consolidated level) and aggressive EV launch pipeline. “Sturdy demand forecasts throughout its product spectrum, as well as a large order book, are additional major positive considerations,” he added.