Reviews

In this edition, we have reviewed Torrent Power Limited and ITC Limited. We suggest our reader-investors to HOLD in Torrent Power Limited and ITC Limited.

We had previously recommended ITC Limited in Volume 34, Issue No. 04 dated January 21 – February 4, 2019 under the ‘Choice Scrip’ segment and was then trading at Rs296 per share. It was recommended based on the company’s strong growth trend. The company is engaged in the marketing of fast moving consumer goods (FMGC) and operates through business segments such as FMCG, paper and packaging, hotels, paperboards and agriculture business. Looking at the quarterly trends on a consolidated basis, for Q4FY20 the company posted net sales of Rs12,456.45 crore – a decrease of 4.75 per cent compared to net sales of Rs13,078.09 crore for Q4FY19.

For Q4FY20 the company gained operating profit of Rs5,171.38 crore, registering de-growth of 6.36 per cent from Rs5,522.35 crore gained in Q4FY19. It reported net profit of Rs3,926.46 crore, increasing by 9.29 per cent from net profit of Rs3,592.80 crore gained in Q4FY19. In terms of the annual financial trend, for FY20 the net sales of the company increased by 3.28 per cent to Rs50,968.50 crore from Rs49,348.43 crore for FY19. PBDT increased by 5.53 per cent to Rs21,671.27 crore for FY20 as compared to Rs20,534.73 crore for FY19. Net profit rose by 21.52 per cent to Rs15,584.57 crore in FY20 from Rs12,824.20 crore in FY19.

Since ITC’s operational levels are near to its normal utilisation levels, the company is expected to increase its market share, especially with faster recovery in its cigarette and tobacco business. Despite the lockdown implemented due to the corona virus pandemic, ITC’s FMCG business operations continued and the company has been able to maintain a strong footing during the ongoing crisis as a result of its diverse portfolio. This will trigger further growth for the company.

Meanwhile, since its financial position looks strong as well, we would recommend to HOLD.

We had previously recommended Torrent Power Limited in Volume 34, Issue No. 17 dated July 22 – August 4, 2019 under the ‘Analysis’ segment. The stock was then trading at Rs310.50 and was recommended based on the company’s strong balance-sheet among private power sector players and its growth prospects. Torrent Power is an integrated utility company engaged in the business of power generation, transmission and distribution. On a consolidated quarterly front, its net sales expanded by 2.01 per cent to Rs2,983.50 crore in Q4FY20 from Rs2,924.80 crore in Q4FY19. The company reported an operating profit of Rs864.38 crore in Q4FY20, up by 15.3 per cent from Rs749.65 crore in Q4FY19. It reported net loss of Rs273.94 crore in Q4FY20 as against net profit of Rs24.80 crore in Q4FY19.

In terms of annual trends, net sales increased by 3.72 per cent to Rs13,640.63 crore in FY20 as compared to Rs13,150.97 crore in FY19. The company recorded an operating profit of Rs3,733.66 crore in FY20, increasing by 10.17 per cent as compared to Rs3,389.07 crore in FY19. Net profit expanded by 30.43 per cent to Rs1,178.88 crore in FY20 from Rs903.83 crore in FY19. The outlook for the company’s gas plants has improved with low LNG prices and the recent off-take of the UnoSugen power purchase agreement. Further, continued capitalisation within regulated distribution and debt repayment is likely to aid earnings.

We recommend HOLD.
(Closing price as of July 27, 2020)