High risk, high reward? Decoding the rally in ITI

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Subscribe to enjoy similar stories. ₹10 trillion is the amount of wealth that was lost on Monday this week as fear of the outbreak of a new virus i.e. Human Metapneumovirus (HMPV), gripped the market.

There was a joke going the rounds that while the first few patients were on their way to full recovery, the virus had sent the stock market into an ICU. Of course, the markets recovered some lost ground yesterday, and hopefully, things should be back to normal in a few days. There was one stock, however, that was abnormally up even as most other stocks were bleeding profusely on Monday.

I am referring to ITI Ltd, the state-run telecom equipment maker, which surged 20%, defying the overall bearish trend. In fact, the stock is up more than 2.5x from its 52-week lows, outperforming both the Sensex as well as the BSE Smallcap Index by a significant margin. If you look at the company's financials, however, you get no indication that you are looking at a multibagger.

The company has incurred losses in FY23 and FY24 and has been making losses for the last 12 months as well. Its 10-year average return on equity (RoE) is a poor -1%, with the three-year average even worse at -12%. The balance sheet also has a fair amount of debt with a debt-to-equity ratio exceeding one.

Hence, given the fundamentals, the valuations seem to be a tad baffling. The company trades at a price-to-book value of almost 30x, whereas the price-to-earnings (P/E) ratio is non-existent because of its loss-making operations. So, given the poor fundamentals, what exactly has made investors warm up to the stock? Why did it go up on a day when the rest of the market had gone the other way? Well, an article on our own website , i.e.