ITC vs VST Industries & Godfrey Phillips | Stock Comparison
5 min readWhy ITC Stock is Falling While its Peer Stocks Are Rising? | Comparing ITC vs VST Industries & Godfrey Phillips
Introduction
What are the reasons behind the under-performance of ITC vs its peers VST Industries & Godfrey Phillips India Ltd? Why ITC stock is falling while its peer stocks are rising? ITC Ltd, VST Industries Ltd and Godfrey Phillips India, all 3 companies have major exposure to Tobacco Business.
ITC vs VST Industries & Godfrey Phillips India
1-year Performance of ITC vs VST Industries & Godfrey Phillips India Ltd
- In last one year, ITC Ltd stock has declined by almost 28%, Whereas its peer stocks – VST Industries and Godfrey Phillips India Ltd has jumped by around 27% and 30% respectively.
- From the following graphs, we can see the completely opposite trend of the stock price movement of ITC vs VST Industries & Godfrey Phillips India Ltd in last one year.
Source : www.bseindia.com
Why ITC Ltd stock is falling when its peer companies’ stocks are going up? Lets do a comparative analysis of the 3 companies.
Comparative Analysis of ITC Ltd vs VST Industries Ltd vs Godfrey Phillips India Ltd
Market Capitalization
ITC Ltd is a Large cap company with market cap of Rs.1.24 Lakh Cr even after share price fall of almost 28% in last 1 year. While VST Industries and Godfrey Phillips both are Mid cap companies with market cap of Rs.6,427 Cr and Rs.5,705 Cr respectively.
Promoter Holding
- ITC Ltd is having 0% promoter holding. Among top public shareholders, Tobacco Manufacturers (India) Ltd holds around 24.2% stake whereas LIC and UTI hold around 16.3% and 8% stake respectively.
- Promoter holding for VST Industries and Godfrey Phillips India are 32.16% and 72.19% respectively.
- Thus free float market cap of ITC is comparatively very high as compared with its peers.
Daily Volumes
- ITC Ltd has huge daily volume almost 1-1.25 Cr being a part of BSE Senxex and NIFYT 50 Indices and a number of ETFs and Index funds.
- On the other hand, daily volume of VST Industries Ltd is hardly 2,000-3,000 shares and daily volume of Godfrey Phillips India Ltd is around 1-2 Lakh shares.
- Thus, any negativity like hike in excise duties on Cigarettes and Tobacco Products by Government in recently announced Budget 2020, can impact ITC stock much severely than its peers because of high free float market cap and huge daily volumes of ITC Ltd.
- One good news for VST Industries Ltd – Mr. Radhakishan Damani, Promoter of Avenue Supermarts has taken a stake of almost 3.25% in VST Industries Ltd in Dec-2019 quarter. This news can create a positive impact for the stock among the retail investors which will support the stock to increase its daily volumes.
Profit Growth YoY %
- Performance wise there is not much difference seen amongst ITC, VST Industries and Godfrey Phillips India Ltd.
- Profit growths are :
- ITC Ltd : 30% (from Rs.3,000 Cr to Rs.3,900 Cr)
- VST Industries Ltd : 30% (Rs.55 Cr to Rs.81 Cr)
- Godfrey Phillips India Ltd : 40% (Rs.82 Cr to Rs.114 Cr)
Price to Earnings Ratio
- The PE ratio of these 3 companies are also in similar range. PE ratio of ITC Ltd is 16.10, while PE Ratio of VST Industries Ltd and Godfrey Phillips India Ltd is 15.15.
- Here, we should note one point, Apart from Tobacco Business, ITC Ltd is having a diversified presence in FMCG (Non-Tobacco), Hotels, Packaging, Paperboards & Specialty Papers and Agri-Business.
- In spite having higher contribution (in terms of both Sales and Operating Profit) from FMCG – Tobacco Business, ITC Ltd is currently employing much greater capital in its Non-Tobacco Businesses like FMCG (Non-Tobacco), Hotels, Packaging, Paperboards & Specialty Papers.
- This may improve the % share of FMCG (Non-Tobacco), Hotels, Packaging, Paperboards & Specialty Papers businesses in Future Sales and Operating Profit performance of ITC Ltd.
- Whereas, VST Industries and Godfrey Phillips India Ltd both are entirely engaged in manufacturing and trading of Cigarettes, Tobacco and Tobacco products.
Frequently Asked Questions (FAQs)
The full form of ITC is Indian Tobacco Company. The company was established in 1910 as Imperial Tobacco Company of India Limited, and was later renamed as the Indian Tobacco Company Limited. And in September 2001, the company is listed as ITC Ltd.
The Promoter holding in ITC Ltd is 0%, the company don’t have any promoter. Among top public shareholders, Tobacco Manufacturers (India) Ltd holds around 24.2% stake whereas LIC and UTI hold around 16.3% and 8% stake respectively.
Tobacco Business of ITC Ltd contributes around 64% in Sales and 85% in Net Profits.
According to the new government policy, there has been a rise in National Calamities and Contingent Duty (NCCD) in Budget 2020. With the hike in excise duty on Cigarettes in Budget 2020, there is an effective tax rise of 10-13%. It is likely to hamper the profitability of ITC Ltd in future, FMCG (Tobacco Business) being the highest contributor in terms of both revenue and net profit of ITC Ltd.
Currently ITC Ltd is at an very attractive valuation with a price to earnings ratio (PE ratio) of 16.10, which is even lower than the PE ratio during 2008 Financial Crisis (when PE Ratio was 19-20). So, there is lower downside risk for the stock. Also ITC Ltd has increased the prices of its Cigarette and Tobacco products by almost 14-20% citing excise duty hikes by government. ITC grabbed the opportunity of Price hike to improve its profitability & took advantage of inelastic demand of Cigarettes. Also, with the rising capital employed in its Non-Tobacco Businesses like FMCG (Others), Hotel, Packaging & Paperboards and Agri, the overall profitability of the company is expected to improve in future.
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