ITC inches towards 52-week high; stock surges 17% in one month

In comparison, the S&P BSE Sensex and the S&P BSE FMCG index were up 1.6 per cent and 0.6 per cent, respectively, in the past one month

Shares of ITC continued their northward movement, and registered a five-month high at Rs 253.25, after they rose 1.3 per cent on the BSE in Wednesday's intra-day trade on expectation of healthy earnings. The stock of the cigarettes to fast moving consumer goods (FMCG) major is now closer to its 52-week high level of Rs 265.30, touched on October 18, 2021.

ITC has outperformed the market by surging 17 per cent in the past one month. In comparison, the S&P BSE Sensex and the S&P BSE FMCG index were up 1.6 per cent and 0.63 per cent, respectively.

For the October-December quarter (Q3FY22), ITC reported strong all-around revenue performance led by robust recovery across markets due to rise in mobility and efficient distribution system.

The company's cigarettes business, which was one of the worst impacted businesses in last two years due to Covid-19 disruptions, reported robust recovery in Q3. The company's paperboard reported record volumes and robust performance was aided by demand revival across most end-user segments, exports and higher realizations. That apart, the easing of travel restrictions, pickup in leisure travel and onset of the festive/wedding season boosted average room revenue (ARR) and Occupancy levels for hotel business.

The company's agri business segment revenue was up 100 per cent driven by strong revenue growth in wheat, rice, spices, and leaf tobacco exports leveraging strong customer relationships, robust sourcing network and agile execution. The company recorded robust growth in value-added portfolio.

Analysts at ICICI Securities believe stable taxation on cigarettes would result in high growth in cigarette volumes in the medium term. Further, we believe FMCG business margin uptick trajectory would continue (after the elevated commodity prices normalise). “We are positive on FMCG growth and margins expansion possibility & the company’s better capital allocation policy (higher dividend pay-out & no more capex on hotels business),” the brokerage firm said in Q3 result update.

ITC's Q3 performance was better than other staples’. The recovery in cigarettes from stable taxation and lower inflation may continue to improve the earnings outlook, analyst at Emkay Global Financial Services said.

Growth in cigarettes business was encouraging and largely volume-driven, reaching above pre-Covid levels. ITC continued to see an improvement in market standing, with innovation and interventions addressing gaps. Stability in taxes remains key for the industry to sustain steady volume growth and gains from illicit trades, the brokerage firm had said with a target price of Rs 270 per share.

Technical View 

Bias: Positive

Target: Rs 265

Upside: 5%

The stock has witnessed a steep rally after testing the lower-end of the Bollinger Band on the daily charts around Rs 208-odd levels. The price-to-moving average action is also fairly positive, with the short-term (20-DMA - Daily Moving Average) at Rs 229.50, holding comfortably above the 50-DMA and 100-DMA at Rs 225.90 and Rs 225.30, respectively. 

As per the weekly charts, the stock currently trades above the higher-end of the Bollinger Band, currently placed at Rs 247.60. The very near-term bias is likely to remain bullish as long as the stock sustains above this level. On the upside, the stock can retest its 52-week high of Rs 265.10, with some resistance around Rs 256.10, as per the monthly chart.

Among key momentum oscillators, the DI (Directional Index) and the MACD (Moving Average Convergence Divergence) are strongly in favour of the bulls. However, the 14-day RSI (Relative Strength Index) and the Stochastic Slow are in overbought zone; hence traders need to be cautious at higher levels.

(With inputs from Rex Cano)