HUL vs ITC: Where did FIIs, MFs & retail investors put their money over last 4 quarters?

Undoubtedly, ITC has been the showstopper in the fast moving consumer goods pack in the last one year, as it gave stellar returns to investors when compared to its peers.

The cigarette-to-hotels major has gained a whopping 62% in the last year, turning out to be the best-performing stock in the consumer staples space.

While investors across the spectrum have made big bucks through their investments in the stock, there’s only one community that led the rally and also increased its ownership quarter after quarter.

Foreign portfolio investors or FPIs have consistently raised their bets on ITC, taking their cumulative holding to 14.21% as of March end. At the end of the June quarter, they were holding 12.68% stake in ITC.

Meanwhile, retail investors have been consistently reducing their holding in ITC for the last three quarters, albeit marginally. As of March end, they held 11.13% stake in the company, compared to 11.70% stake at the end of June quarter.

Mutual fund activity in the stock has been volatile. After raising stake sequentially in the December quarter, mutual funds trimmed it in the March quarter. They cumulatively held 9.47% stake as of March end, compared to 10% stake at the end of the June quarter.



If one looks at the performance of FMCG sector bellwether Hindustan Unilever, the stock has underperformed ITC by a wide margin in the last one year. Compared to ITC, HUL stock has given around 19% returns in the last one year.

And this is despite consistent buying by both mutual funds and FPIs.

Mutual funds have raised their holding in the “Dove” soap seller to 4.27% as of March end, from 3.95% a quarter ago. As of June 2022, they held a 3.64% stake.

Similarly, FPIs have consistently raised their holding in HUL for three quarters in a row. Their holding as of March end was 14.36%, compared to 13.30% as of June end.

While both FPIs and mutual funds were increasing stake, retail investors were sellers in this FMCG stock as well.

The cumulative holdings of retail investors was 10.61% at the end of the March quarter, compared to 11.20% at the end of the June quarter.



ITC or HUL a better bet?
From a purely valuation standpoint, ITC is a better bet over HUL even after the stellar rally the stock has seen.

On a 12-month trailing basis, HUL trades at 61.3 times P/E, which is higher than the industry median, whereas ITC trades at 27.2 times, according to Trendlyne.

From an earnings growth perspective too, the outlook is brighter for ITC than HUL as it is firing on all cylinders.

The mainstay cigarette business is expected to report double-digit growth in both FY24 and FY25. The non-cigarette FMCG business and agriculture are also expected to do well alongside the hotels and paperboard businesses.

“We upgrade our FY24/25 EPS by 1-2%, marking the fourth straight quarter of EPS upgrades. With only a modest 2% tax hike in the budget, ITC should see continued momentum in the cigarette business, even as other segments also do well,” said Jefferies India analyst Vivek Maheshwari in his report.

The brokerage has retained a “buy” rating on the stock with a price target of Rs 520.

Meanwhile, the earnings outlook for HUL is not that bullish because the consumption in the rural markets are yet to show clear signs of recovery.

“We are lowering our target price (for HUL) to make it in sync with the stock’s current trading multiple (52-53x NTM EPS) as a re-rating may not come by so easily in what appears to be a tougher operating environment,” JM Financial lead analyst Richard Liu said in his report.

While analysts do see rural markets recovering in the coming quarters, the upcoming monsoon season will be key for the same.

Given the strong run-up, analysts do see limited re-rating potential for ITC in the near term, but it’s a “buy-on-dip” stock as long-term prospects remain upbeat.

(Data inputs from Ritesh Presswala)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)