25 May ITC hits new 52-week high; up 60% in one year; should you buy?

Can ITC shares reach Rs 1000 Levels?

ITC’s share price has been on a remarkable upward trend, making it the top-performing stock in the Nifty index over the past year. It has witnessed a significant gain of 60% during this period. Moreover, over the last 2 years, the stock has surged by an impressive 105%.

The company recently announced its financial results for the March quarter, highlighting robust growth in cigarette volume.

The bullish momentum of ITC shares shows no signs of slowing down, as they climbed nearly 2% in morning trade, reaching a new 52-week high of Rs 442.50 on the BSE. This positive trajectory is poised to extend its winning streak into the fifth consecutive session.

Notably, the stock has consistently maintained an upward trajectory since January this year, delivering positive returns on a monthly basis.

Company Overview: ITC Limited

ITC Limited, formerly known as the Imperial Tobacco Company of India Limited, is a diversified conglomerate headquartered in Kolkata, India.

It was established in 1910 and is currently one of India’s leading private-sector companies.

Business & Products:

FMCG Segment:

ITC’s FMCG segment consists of popular brands in multiple categories such as
-cigarettes,
-packaged foods,
-personal care products,
-education and stationery products,
-agarbatti (incense sticks), and matches.

The company has a significant market presence with its well-known brands, including
-Aashirvaad,
-Sunfeast,
-Bingo!,
-Yippee!,
-Classmate,
-Fiama, and
-Vivel.

Hotels:

ITC owns and operates luxury hotels under the brand name ‘ITC Hotels.

The hotel division offers a range of accommodation options, culinary experiences, and world-class hospitality services across various cities in India.

Paperboards and Packaging:

ITC is one of the largest manufacturers of paperboards and specialty papers in India.

The company offers a diverse range of packaging solutions for industries such as consumer goods, pharmaceuticals, food, and beverages.

Agri-Business:

ITC is involved in agricultural commodities trading, sourcing, and processing.

The company works closely with farmers, providing technical assistance and infrastructure support to enhance agricultural productivity and promote sustainable farming practices.

Information Technology:

ITC’s Information Technology division provides a range of IT solutions and services, including

-e-choupal (a digital platform connecting rural farmers with markets),
-supply chain management, and
-e-commerce solutions.

Corporate Social Responsibility (CSR):

ITC is committed to sustainable business practices and social responsibility.

The company focuses on areas such as environmental conservation, rural development, education, healthcare, and livelihood creation through its CSR initiatives.

ITC’s Strong Q4 Performance:

The surge in Standalone Net Profit:

-ITC reported a 21.4% surge in standalone net profit for the March quarter.
-Net profit rose to Rs 5,086.86 crore, up from Rs 4,190.96 crore a year ago.
-The strong performance was driven by increased cigarette sales and softening commodity prices.

Revenue Growth and Operating Expenses:

-Quarterly operating revenue rose 6.57% to Rs 17,506 crore, surpassing street estimates.
-Operating expenses saw a slight increase to Rs 11,658.05 crore.
-Operating profit surged 18.9% to Rs 6,209.4 crore.

Cigarette Business Performance:

-The cigarette business reported volume growth of 11-12% during the quarter.
-Segment revenues grew to Rs 7,355.83 crore, up 14.1% from the previous year.

ITC credited its focused portfolio, timely interventions, and agile execution for reinforcing market share in the cigarette business.

FMCG Segment Growth:

-ITC’s fast-moving consumer goods (FMCG) arm reported a 19.3% jump in revenue.

Various categories, including staples, biscuits, snacks, noodles, dairy, beverages, soaps, fragrances, and agarbatti, contributed to this growth.

Margin expansion was driven by interventions such as
-premiumization,
-supply chain agility,
-pricing actions,
-digital initiatives,
-cost management, and
-fiscal incentives.

Hotel Business Revenue:

-ITC’s hotel business revenue doubled to Rs 781.71 crore in the March quarter.
-The hotel segment witnessed growth in the aftermath of the pandemic.

Positive Outlook:

-ITC’s cigarette business continues to experience strong volume growth, gaining market share from contrabands and illicit cigarettes.

-The company expects stable taxation and traction in high-priced cigarettes to drive further volume growth and market share gains.

-The FMCG business is witnessing improving margins, aided by high growth in the foods segment.
Softening commodity prices are anticipated to contribute to margin expansion in the future.

Return to Normalcy in Operations:

-After two years of pandemic-related disruptions, FY23 marked a return to normalcy in ITC’s operations.

-The company was able to navigate the challenges and resume regular business activities.

Geopolitical Tensions and Supply Chain Disruptions:

ITC acknowledged that geopolitical tensions and supply chain dislocations had an impact on its operations.

These factors contributed to unprecedented inflation and volatility in global commodity and energy prices.
Impact on Consumer Spending:

Inflation and volatility in prices have resulted in increased pressure on household budgets. As a result, consumer demand, especially in rural areas, and discretionary spending in urban India remained muted.

Consumer-Centric Approach and Execution Excellence:

Despite the challenging environment, ITC’s focus on consumer-centricity, execution excellence, and strategic interventions helped the company achieve strong performance.

By prioritizing the needs of consumers and implementing effective strategies, ITC was able to navigate the challenges and deliver positive results.

Healthy Fundamentals:

• Market Cap ₹ 5,46,274 Cr.
• Current Price ₹ 440
• High / Low ₹ 442 / 258
• Stock P/E 28.6
• PEG Ratio 2.44
• Dividend Yield 2.89 %
• ROCE 39 %
• ROE 29 %
• OPM 36 %
• Free Cash Flow ₹ 16,184 Cr.
• Promoter holding 0.00 %
• FII holding 43.4 %
• Public holding 14.5 %
• DII holding 42.1 %

Increased Stake by Foreign Institutional Investors (FIIs):

FIIs have significantly raised their holdings in ITC during the September quarter of FY23 and subsequent quarters.
This indicates growing confidence from FIIs in the company’s potential and prospects.

Analysts View:

Motilal Oswal Financial Services:

-The firm maintains a buy call on ITC with a target price of Rs 485.

-Motilal Oswal highlights ITC’s impressive performance in its non-staples FMCG businesses, with nearly 19% revenue growth and margin improvement despite elevated raw material costs.

-They note healthy earnings per share (EPS) growth of about 24% in FY23 and anticipate an EPS compound annual growth rate (CAGR) of nearly 15% over the next two years.

-ITC’s earnings outlook is considered better compared to other large-cap staples players in FY24 and FY25.

Phillip Capital:

-The firm maintains a buy call on the stock with a target price of Rs 475.

-Phillip Capital reports that ITC’s Q4FY23 numbers exceeded their expectations, driven by strong performance across various segments in terms of both revenue and profitability.

-They anticipate a 7% cigarette volume growth for ITC in FY24, citing minimal tax incidence as a contributing factor.

-Market share gains from the contraband or illegal segment, higher growth rates in the high-margin KSFT segment, stability in taxes, and increased innovation and marketing initiatives are expected to support ITC’s cigarette volume growth.

Technical factors supporting ITC’s bullish trend:

Moving Averages:

ITC’s stock price is comfortably above various short-term (5-day, 10-day, 20-day, 30-day, 50-day) and long-term (100-day and 200-day) simple moving averages.

This indicates positive momentum and suggests a bullish trend in the stock’s price.

Price Action and RSI:

Based on price action, ITC is currently exhibiting an extremely bullish outlook.

The weekly Relative Strength Index (RSI) has consistently traded between the 50-80 zone, indicating an established bullish trend.

This suggests that the stock has been displaying strength and positive momentum.

Jigar S. Patel, Senior Manager of Equity Research at Anand Rathi Share and Stock Brokers, suggests that one can consider buying ITC within the range of Rs 435-445.

The upside target is set at Rs 475 with a stop loss of Rs 420.

Please note that technical analysis indicators and recommendations are subject to interpretation and market fluctuations. The overall economic situation, geopolitical factors, and market conditions can continue to evolve, potentially impacting ITC’s future performance. Staying informed through reliable financial news sources is recommended for the latest updates on the company’s operations and performance.

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies are their own and not that of the website or its management. Aceink.com advises users to check with certified experts before taking any investment decisions.