As this crisis situation due to Covid-19 still continues to exist, economic projections pertaining to that remains gloomy. With no clarity on when that will subside, the slowdown can run deep and can last for many quarters to come. And when it comes to recovery, different sectors will have different recovery times.
When we talk of FMCG sector, few stocks such as HUL & Nestle have so far shown strong surge in stock price owing to the demand created by panic buying as a result of prolonged lockdown exercise to tackle the coronavirus situation. ITC however, could not replicate such a comeback surge in its stock price as compared to HUL & Nestle. But when we think of investment decisions in such uncertain times, utmost priority should be given to safety considerations and appropriate valuations for the sake of long term sustainability. For ITC Limited, this can be analyzed and talked upon when we draw a comparative landscape with HUL & Nestle, on the basis of few growth, safety & valuations metrics :
From the above chart we can see that ITC is lagging behind HUL & Nestle when it comes to growth metrics such as EPS growth and RoE growth. That means ITC has performed mediocrly on the earnings front for the last few years as compared to HUL & Nestle. However, when we consider from the Value Investing perspective, when we look for the more safer bargains (specially in these uncertain & volatile times) , ITC seems to score over HUL & Nestle with its lesser PE ratio and relatively much lesser Price to Book Value ratio.
Though debt-to-equity ratio for all three companies is almost zero when we consider another important safety metric viz Current Ratio, ITC seems to be doing far better than HUL& Nestle over the years as visible from the following chart :
The superior current ratio of ITC as compared to HUL & Nestle denotes that it has had much better operating financial health all these years which indicates that the company has enough financial resources to remain solvent in the short-term. A consistent current ratio (upward of 2) should make ITC relatively much better prepared to deal with payment and collection disruptions which are highly likely owing to the prolonged lockdown.
Also, a substantial cash balance and large liquid investments on its books come as a strong source of financial flexibility for the company in times of economic downturns. However, from the long term perspective ( keeping aside the crisis concerns) how well the management utilizes these cash & investment proceeds for brand building for ‘FMCG Others’ vertical need to be seen.