WILL ITC OUTPERFORM?
It all depends upon how management realign the business. Players
like Philip Morris has announced that 50% of revenue will come from smokeless products.
There has been pressure on the management to demerge various businesses to
unlock the value. I suspect that management would soon announce some measures
that can lift mood on the counter.
Also, Mutual funds have started increasing stake in the company.
Another reason to support ITC performance is its overall quarterly results which has shown good
rise of sales at 13183.21cr and profits at 3343.44cr which led to growth by
26.4% and 30.2% on YoY basis. Operating profits also bloomed by 26.4% at
4890.78cr thus supporting ITC performance.
Profit Trend:
Further If we check the past profit trend of ITC we can see over
the years, the profit of the company has continuously rising from 4210.78 in
2010 to 15,593 till 2020.
Undervalued among
Other FMCG stocks:
Amongst various industries and
companies, ITC has comparatively low price earnings of 19.14. While TATA
CONSUMER PRODUCTS tops the chart with the high price earnings of 115.
Technical
reasons: (triangle breakout)
These triangle patterns help in indicating the continuation of bullish or bearish market.
They are depicted by drawing trendlines along a converging price
range that connotes a pause in the prevailing trend.
ITC - Descending Triangle formation in Big Ascending triangle
Positional - Long at CMP 212.5 SL 200, Target 222 & 238
Medium to Long Term - Long at CMP 212.5 SL196, Target 255 &
309
But even after all the above reasons ITC is
underperformed, Why?
Since 2010/11, there has been 20% decline in the
volume of legal cigarette industry. Also Selling pressure from the institutional investors is increasing
as they did not want to take exposure to liquor and cigarette related business
due to ESG norms. Unrelated businesses in a single company also affect the
performance.
Further ITC have Poor ROE from the FMCG business because Other
businesses of ITC did not contribute as much as they are expected to do.
No new category creation like Maggie, Kurkure and Lays also cause
underperformance.
Also Read - What is the future of the ITC share price?