What caused the sudden doubling of ITI’s stock value within a short period of time?
Many members of GenZ may not be familiar with Indian Telephone Industries Ltd., now known as ITI Ltd., or the iconic black rotary dial phones that were once a symbol of class and connectivity during the License Raj era.
Despite this lack of historical knowledge, Gen Z seems to have developed a newfound interest in ITI Ltd.’s stock, which has doubled in less than 10 trading sessions.
ITI Ltd., the first company established by the Indian government after independence, was once the sole manufacturer of telephones in a time when they were considered a luxury. Like many state-owned enterprises, ITI Ltd. struggled to adapt to changing technologies and fell into obscurity.
However, the company has experienced a resurgence, now boasting a market valuation of over INR50,000 crores, surpassing other active state-owned companies such as Bharat Dynamics Ltd. and BEML Ltd. The stock has doubled in value since the end of December.
Despite posting a loss of INR569 crores on revenues of INR1,263 crores in the last fiscal year, ITI Ltd. saw a surge in revenues to INR1,016 crores in the September quarter, though it still reported a loss of INR70 crores. The stock price has risen by 15% to INR529, up from INR283 on December 24.
The company itself seems puzzled by the sudden rally, stating to the BSE that there are no pending matters or events that could impact the stock price. However, there appears to be a shift in ITI Ltd.’s business strategy, moving away from manufacturing outdated phones and towards new ventures in telecom infrastructure and electronic manufacturing.
Recent contracts, such as a INR95 crore deal with Uttarakhand’s Directorate of Geology & Mining for surveillance systems and a consortium partnership for the INR4,559 crore BharatNet project, indicate a shift towards more modern technologies. As the government invests in infrastructure development, ITI Ltd
Moreover, the company is expanding its reach beyond telecommunications. ITI states, “The company is also consolidating its diversifications into defense, IOT, E-governance, IT projects, and services sector to gain a competitive edge.” But that’s not all. ITI is also venturing into the data center business, which is currently a booming industry.
ITI proudly operates a cutting-edge Data Center at its Bengaluru unit, providing services to government institutions, departments, and banks. This strategic move indicates that the company is adapting to the demands of the modern era.
However, the question remains – does the revenue and profitability potential justify the valuation that exceeds those of profitable companies? For instance, HFCL, a competitor working on projects for BharatNet, is valued at INR 15,890 crores, with a revenue of INR 4,074 crores and a net profit of INR 309 crores.
If the financial fundamentals do not align with the market’s enthusiasm, what other factors should be considered? One crucial aspect that often goes unnoticed is the public float. Stock exchange filings reveal that the government owns 90% of ITI, leaving only 10% for the public. However, the Special National Investment Fund holds 7.9% of that 10%, leaving a mere 2% as the actual public float.
With such a limited public float (2.02%), can investors rely on accurate price discovery for ITI’s stock?
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.