The bullish run of ITC shares remains unabated as they rose nearly 2 per cent in morning trade to hit their fresh 52-week high of ₹442.50 on BSE on Thursday (May 25), looking set to extend its winning streak into the fifth consecutive session. On a monthly basis, ITC share prices have been in the green since January this year. The stock it the best-performing Nifty stock in the last one year, gaining 60 per cent. The stock has surged 105 per cent in the last two years.
The company disclosed its March quarter earnings on May 18, reporting healthy growth in cigarette volume. The company outperformed analyst expectations with a 21.4 per cent surge in standalone net profit for the March quarter, on the back of stronger cigarette sales and softening commodity prices.
The company, known for its Gold Flake cigarettes and Bingo chips, reported a net profit of ₹5,086.86 crore for the quarter ended 31 March, up from ₹4,190.96 crore a year ago. The figures topped the ₹4,868 crore predicted in a survey by Bloomberg analysts.
Brokerages pointed out that the volume growth outlook remains healthy as there is no material increase in cigarette GST rates and there was no increase in national calamities duty in the Budget 2023.
Read more: ITC profit up 21% in Q4 as cigarette sales rise
Healthy fundamentals
ITC‘s stellar performance is backed by strong fundamentals. The company’s operating profit has been either increasing or broadly stable in the last few years. Its net profit has seen a sustained rise on a quarterly basis.
The company’s shareholding pattern shows foreign institutional investors (FIIs) significantly raised their holding in the September quarter of FY23 and raised their stake further in the subsequent quarters.
As brokerage firm Motilal Oswal Financial Services pointed out, “Unlike its staples peers, ITC has reported consistent impressive performance in its other FMCG business (nearly 19 per cent revenue growth and margin improvement despite elevated raw material costs), along with robust performance in the hotels’ segment. ITC’s earnings visibility remains better than peers.”
Motilal Oswal has a buy call on the stock with a target price of ₹485 as it pointed out that ITC posted a healthy earnings per share (EPS) growth of about 24 per cent in FY23 and it expects an EPS CAGR of nearly 15 per cent over the next two years.
“ITC’s earnings outlook is better compared to other large-cap staples players in FY24 and FY25,” said Motilal Oswal.
Another brokerage firm Phillip Capital observed ITC’s Q4FY23 numbers were above its expectations owing to strong performance across various segments both on revenue as well as profitability. The brokerage maintained a buy call on the stock with a target price of ₹475.
Phillip Capital expects ITC’s cigarette volume growth of 7 per cent in FY24 owing to a minimal increase in tax incidence, which provides clear visibility for the next nine months. Besides, market share gains from contraband or illegal segment on account of increased surveillance, higher than the category growth rate in high margin KSFT (king size filter tip) segment (over 30 per cent revenue contribution) due to stability in taxes, increased innovation and marketing initiatives will also aid the company’s cigarette volume growth.
Technical factors
Not only the fundamentals, but technical indicators are also supporting the bullish trend of ITC. The stock is comfortably above its short-term (5-day, 10-day, 20-day, 30-day, 50-day) and long-term (100-day and 200-day) simple moving averages.
“At the current juncture, ITC is extremely bullish based on price action. From the indicator point, weekly RSI is continuously trading between the 50-80 zone which is a sign of an established bullish trend. One can buy in the range of ₹435-445 for an upside target of ₹475 with a stop loss of ₹420,” said Jigar S. Patel, Senior Manager of Equity Research at Anand Rathi Share and Stock Brokers.
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Disclaimer: The views and recommendations given in this article are those of individual analysts and brokerage firms. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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