ITC stock rally: Shares of ITC hit a two-year high of Rs 273.10, up nearly 2 percent on the BSE on Monday in an otherwise weak market. The stock is up 6 percent in the past two sessions in anticipation of strong gains from improved cigarette volumes.
The share price of the major fast-moving consumer goods (FMCG) cigarettes traded at its highest level since February 2021. The price of ITC’s share has skyrocketed from Rs 208.50 (closing price on NSE on February 24, 2021) to Rs 273 ,15 today. During this rally, ITC shares climbed to a fresh new 52-week high, giving another break on the technical chart at Rs 263 apiece. According to stock market experts, the stock is in a bull trend and now has strong support at Rs 255 levels.
In calendar year 2022, ITC has so far outperformed the market with a 25 percent increase, compared to a 1.6 percent rise in the S&P BSE Sensex. It had previously reached a record high of Rs 353 on July 3, 2017.
Reasons behind the huge rally
ITC is better positioned than its competitors with improved cigarette performance and strong revenue visibility. Analysts expect ITC to report a relatively stronger quarter, with improvement in cigarettes and other divisions and less margin pressure compared to FMCG peers.
Analysts at Emkay Global Financial Services estimate a stable performance of cigarettes with a sales/EBIT growth of 9 percent/10 percent. FMCG sales growth will be 9 percent, while margins will remain flat year-over-year.
“We estimate strong performance in paper and agri with 11 percent/38 percent EBIT growth and break-even EBIT for hotels. After-tax profit growth is lower at 8 percent due to lower other income and a higher effective tax rate (ETR),” the brokerage said in a preview of the fourth quarter.
The conflict between Russia and Ukraine has caused wheat prices to soar, benefiting ITC’s agricultural division, which exports wheat. For the quarter to December, the agricultural division contributed just over a quarter of ITC’s revenue, with revenue growth nearly doubling from year-ago levels and segment profit growth of 23%.
Lifting Covid restrictions led to increased mobility and travel. This bodes well for ITC’s hotel division, which suffered significantly from lockdowns and reduced mobility during the pandemic. The opening of educational institutions also means good news for the company’s stationery store.
The investigative report from brokerage firm Edelweiss Wealth has also given a ‘buy’ label to ITC shares, expecting the shares to rise to ₹450 each over the long term.
About fundamental factors that could fuel the price increase of the ITC stock; the wealth research report said, “We expect cigarette volume to rebound at a CAGR of 5 percent during FY22-24E, from a CAGR of -1 percent during FY11-21; FMCG’s EBITDA margin to scale to higher single digits; and revitalize the hotel, carton and agricultural commodities businesses, leading to a CAGR of 12 percent in FY22-24E, up from just 7 percent in the past five years.”
Marking of the bull trend visible in ITC stock price chart pattern; Edelweiss Wealth’s research report said: “A strong upward movement in prices on the ITC/FMCG ratio chart suggests a strong outperformance of the stock in the sector. Prices on the ratio chart suggest a base formation indicating the start of a strong outperformance Probable formation of an inverted head and shoulder pattern on the weekly charts and an analysis of the time series on the quarterly chart indicate a trend change and revival of the super bull cycle.” The report then added that ratio chart to a P&F platform indicating strong core building that has been underway for two years.
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