ITC nears two-year high, up 11% in four days; can hit Rs 300, charts say

Analysts believe ITC's cigarettes business will fully recover amid aggressive vaccination drive and reduction in Covid-19 cases

Shares of ITC hit a fresh 52-week high of Rs 258, up 3.5 per cent on the BSE in Thursday’s intra-day trade on the back of heavy volumes. The stock has rallied 11 per cent in the past four trading days, on expectations of an improvement in the company’s businesses. Most of the brokerage houses are bullish on ITC as they believe the company’s cigarette business will fully recover with the aggressive vaccination drive and reduction in Covid-19 cases.

The stock of the biggest cigarette and second largest fast moving consumer goods (FMCG) company hit a 23-month high on the bourses. It was quoting at its highest level November 15, 2019. The trading volumes on the counter jumped nearly 1.5 times, with a combined 32.36 million equity shares having changed hands on the NSE and BSE till 11:15 am.

The board of directors of ITC is scheduled to meet on October 27, 2021, to consider and approve the financial results of the company for the quarter and six months ended September 30, 2021.

Analysts at YES Securities expect a strong performance on a 2-year CAGR basis after witnessing strong performance in the base quarter. The strong momentum to continue for the entire staples universe due to resiliency in demand notwithstanding the price hikes taken by them to mitigate continued inflationary pressure albeit with lesser severity in July-September quarter (Q2FY22), the brokerage firm said in the consumer staples earnings preview.

"Rural demand is expected to remain strong this quarter as well which would mean a strong performance from companies which have a well-entrenched rural distribution network or have focused on building that over the past couple of years. Urban demand is expected to outpace rural demand in Q2," it added.

For ITC, the brokerage firm expects recovery to continue in cigarette sales with 25 per cent revenue growth and margins to improve aided by positive operating leverage.

Meanwhile, analysts at Phillip Capital said that cigarette volumes will recover for ITC, although they will still be lower than pre-covid levels. "Tailwinds for FMCG business to recede down versus first lockdown. Earnings before interest, tax, depreciation and amortization (ebitda) margin to see c180bps expansion owing to favourable product mix. We expect PAT to see 28 per cent growth on account of a softer base,” it added.

Brokerage Emkay Global estimates 11 per cent volume growth with EBIT growth of 14 per cent in cigarettes. FMCG sales growth of 10 per cent, and an 11 per cent rise in EBIT is likely, it said, adding that other segments are expected to record sales and EBIT growth of 13 per cent and 47 per cent, respectively.

Technical Outlook

ITC Ltd (ITC)

Likely target: Rs 300

Upside potential: 15%

The shares of ITC have broken out above the 200-weekly moving average (WMA), currently placed at Rs 240.30 with aggressive volumes. Whenever a stock shows aggression crossing 200-WMA, the market participants regard such a move as a trigger for a bigger upside. This momentum points at a rally towards Rs 300 from a medium-term perspective, according to the weekly chart.

The immediate support comes at Rs 240 and Rs 230 levels with oscillators supportive of the upside bias. The stock strength with an upward direction reflects accumulation on every healthy correction with Moving Average Convergence Divergence (MACD) making a positive crossover above the zero line, as per the daily chart.

The broad perspective suggests the next breakout that may see the addition of longs from an investment persepctive. CLICK HERE FOR THE CHART