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Gladiator Stocks - ITC - ICICI Securities

Posted On: 2020-08-12 02:54:26


Buy ITC: in the range of Rs. 198.00-205.00 for target price of Rs. 233.00 with a stop loss of Rs. 183.00. Time Frame: Six months

Technical View

The stock has anchored secondary corrective phase in the vicinity of 24 years rising trend line (on a monthly closing basis) and undergone a base formation over past five month, indicating accumulation at key support zone. During this base formation stock has been bouncing from lower band of upward sloping channel (as shown in daily chart), indicating buying demand emerging at elevated support base. Currently stock is on the verge of resolving out of past two months consolidation (Rs. 209-191). Thereby offering fresh entry opportunity with favourable risk reward to ride next leg of up move

Structurally, we believe stock has approached its time wise maturity of intermediate corrective phase as it has completed 11 quarters correction which was seen during 2006-08. Thus we believe stock is poised at key support zone

We expect the stock to resolve higher and head towards Rs. 233 in the medium term as it is near 80% retracement of Nov'19 to Mar'20 decline (Rs. 266- 135) placed at Rs. 240

Fundamental View

The 75% of FMCG business products (ex. Stationary) consist of staples, packaged foods, hygiene products which witnessed an impressive growth of 34%. On the other hand 25% of products (discretionary categories) such as snacks (Bingo), deodorants & Juices saw de-growth of 25%. Education & Stationary revenue was worst hit with a decline of 65% as education institutions remained closed. FMCG business margins (EBITDA) saw 170 bps improvement to 7.6%. We believe the company's strong packaged foods portfolio would continue to benefit from increased 'in-home' consumption in medium term. Further, we believe the growth in hygiene category would be structural with increase in per capita spends.

We change our cigarette volume de-growth estimate for FY21E to 9% from 10% earlier with faster restoration of trade inventory. We believe category can witness a positive volume growth in medium term as contraband cigarettes sales have been impacted by stalled international travel, sealed borders & increase in seizing of illicit cigarettes. We estimate full recovery of cigarette volumes with 12% growth in FY22E. The company has taken ~9% price hike in February after the excise duty increase in Budget 2020. We expect a 7.2% CAGR growth in cigarettes sales during FY20-22E

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Shares of ITC LTD. was last trading in BSE at Rs.203.65 as compared to the previous close of Rs. 198.9. The total number of shares traded during the day was 4510167 in over 37473 trades.

The stock hit an intraday high of Rs. 207.6 and intraday low of 199.95. The net turnover during the day was Rs. 923308622.

Source: Equity Bulls

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