The most ridiculed Nifty stock gets largest retail attention in June quarter

NEW DELHI: Last month, a technical analyst from a prominent Mumbai brokerage posted a peculiar stock recommendation on his WhatsApp account:

CMP: Rs 200

Resistance: Rs 200

Support: Rs 200

Target: Rs 200

Stop loss: Rs 200

Stock: ITC

This ridiculous recommendation was obviously not serious, but in jest. Though, it was just one of those memes running around in the financial circles, exploiting the fact that the share price of ITC has not moved much from Rs 200 level in the last one-and-a-half year.

The underperformance of the stock vis-à-vis its peers has generated some scathing criticism from the likes of fund manager Manu Rishi Guptha (which also elicited Rs 100 crore defamation lawsuit from ITC), at the same time became the butt of harmless jokes on the Internet.

Notwithstanding all these, data suggests the stock was among the most favourite investment for retail investors among all 50 Nifty stocks during the June quarter.

Number of retail investors in the company grew by 4.31 lakh during the quarter to 25 lakh. They together now hold a 12.6 per cent stake in the company, up from 11.5 per cent at the end of March quarter.

Why such retail exuberance?
The question arises, despite ridiculed mercilessly and virtually no performance even in an unprecedented bull run, why are retail investors attracted to the stock? The answer is multilateral.

One, the stock is one of the cheapest FMCG name available. Two, it is a large professionally managed company with a decent growth potential. Three, most brokerages think it is a sleeping giant and are bullish on it. Four, its products have good brand visibility even among first time investors who are coming to Dalal Street in flocks. Five, it has developed a cult-like following among investors and hence gets a lot of eyeballs.

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All these reasons are complemented by unbridled hopes that the stock will make money for them. In the June quarter, even though the stock did not move much, business-wise the company impressed many analysts.

For the quarter, ITC’s revenue from operations for the quarter rose 36 per cent to Rs 12,959.15 crore. The net profit climbed 28.62 per cent to Rs 3,013.49 crore. Operating performance was well ahead of analyst forecasts aided by beat in cigarettes and paperboard businesses.

However, its problems with FMCG and hotel businesses persisted.

ITC’s ever expanding FMCG portfolio includes from atta to biscuits to soaps to hand sanitisers, which have managed to grab some market share from its competitors. But that has come at a cost. It sells these products at a fraction of margins to its competitors.

For June quarter, its non-cigarette FMCG Ebit margin was 4.7 per cent. In comparison, HUL said its margins stood at 24 per cent. The company management has repeatedly made claims of recovering margins for some time now, but has failed to deliver on the promise.

Besides, due to the pandemic its hospitality business under which it runs luxury hotel chains and resorts has suffered extensively. This has drawn criticism from shareholders with demand to offload such asset-heavy businesses that are bleeding cash.

Due to these shortcomings, analysts say, the stock has not moved much. Concerns over its non-performing businesses outweigh the superb growth of its cigarette and packaging portfolios. However, that has not deterred them to be bullish about its prospects. Most analysts expect the stock to anywhere between Rs 250-280, meaning a potential upside of about 35 per cent from current levels.

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All these retail investors who entered into the stock last quarter will definitely hope that these projections come true. Rest of us, till then, can sit back and enjoy the memes.



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