Last updated: 30 Jun, 2020 | 04:53 am
While the pandemic has hurt businesses across sectors, FMCG focused business such as ITC, HUL and Nestle have posted decent numbers in the quarter. In fact, food and other FMCG essential services witnessed panic buying and hoarding during the early onset of the pandemic.
ITC shares have gained by more than 50% from their March lows, as investors were positive on the prospects of defensive businesses such as FMCG and Pharma in these volatile times.
Sin taxes’ will remain a key overhang on the firm. If the government is unable to meet its revenue targets through taxation, it may need to continue to lean on taxing “sin goods”, such as cigarettes. Such a hike would also impact ITC’s overall revenues. The company has been trying to diversify away from tobacco and increase the revenue share of FMCG and Hotel segments. This shift will benefit the firm, as the FMCG sector commands a higher valuation (PE of around 40), as compared to Cigarettes (PE of around 20).
Our VGQM model has a BUY rating on the stock.