Looking at the chart, ITC (CMP: 329) has critical support of around 325 & sustain below that it could fall to 315-312 area. Consecutive closing below 312, ITC may further fall to 307-298-290-285 zone under the bear market scenerio.
On the up side, ITC has to sustain over 330-337 zone for an immediate target of 346-352 & 365 in the short term. Consecutive closing above 365, ITC may target 373-390-410 in the medium term. In the long term, sustain above 410, ITC may scale 438-445 zone (FY:16-17) in the bullish case scenerio.
Bottom Line: Technical Trading Levels
| SL</>2 | FROM SLR | |||||||||
| ITC | CMP | 329 | ||||||||
| T1 | T2 | T3 | T4 | T5 | T6 | T7 | SLR | |||
| Strong > | 330 | 337 | 346 | 352* | 365 | 373 | 390 | 410 | <325 | |
| Weak < | 325 | 319 | 315 | 312* | 307 | 298 | 290 | 285 | >330 | |
Q4 result of ITC is well below market expectations (published after market hours on last Friday) primarily on account of poor volume in cigarette business amid high Govt. taxation and increase in cost on manpower & brand promotional/advertisements expenses, although raw materials input costs decline. Its agri commodity export & paper business also showed lack luster performance. Only silver linings appears to be in FMCG & Hotel business, where it showed some decent growth. In fact, FMCG division has started decent positive EBIT for the last two quarters for the first time since its launch.
Going ahead, the full impact of price hikes in cigarette business may be reflected in AMJ'15 QTR and absolute volume may not be so bad as being presumed. Due to excessive price hikes, loose cigarettes are being sold repeatedly to the same customer who earlier bought the full packet at the first instance. But, definitely number of middle aged active smokers are on the downside. Thus there may be some uptick in volume of cigarette business in next quarter. We should not forget that nearly 80% of cigarette market in India is controlled by ITC.
Over the last ten years, the prudent management of ITC has successfully reduced the dependance of cigarette business to less than 50% of its overall revenue, sensing the risk of the same due to growing health consciousness & change of life style of Indian demography and sequentially higher taxes by the Govt. to discourage sale. ITC built its high margin FMCG business organically (comprising foods, premium life style, personal care to education & stationery, safety matches & agarbattis) quite convincingly on the strength of its super strong cigarette distribution network along with its "cash & carry" model. In fact, FMCG might be the core business in the next 5-10 years in the overall scale of ITC's revenue and it may be a "Desi HUL", considering the brand image & distribution network of ITC. Some of its super high recall brands are "Aashirvaad, Sunfeast, Vivel, Bingo, Classmate & Yippee, Dark Fantasy". Its also actively planning to enter "milk dairy" sector shortly, which is now dominated by Amul & Nestle. IRCTC (Indian Rail) is also planning to add "ready to eat" food to its menu, which may be also helpful for ITC.
But, at the end of the day, net earnings (EPS) is the last word for a stock valuation. While there might be a revival & uptick in cigarette business (??) and sequentially higher growth in FMCG, Agri, Paper & Hotel divisions in the days ahead, growing regulatory overhang on cigarettes & sluggish export market could keep the stock price in a range in the near term. Also, its premium FMCG brands are meant for urban market & moderate to satisfactory monsoon this year may not affect adversely overall rural other FMCG products. Don't forget, the stock price is already got corrected for more than 20% from its March high.
Also, ITC has strong balance sheet with considerable cash & cash equivalents and with professional management, it could grow or diversify gradually in a organic or inorganic way in the coming days to make up for possible fall in cigarette business.
As par BG metrics of quick TF model, current median valuation of ITC might be around 360 and its projected median value may be around 395-430 (FY:16-17) under the current market conditions.
| SCRIP | EPS(TTM) | BV(Act) | P/E(AVG) | LONG TERM | SHORT TERM | MEDIAN VALUE | 200-DEMA | 10-DEMA |
| ITC | 11.99 | 32.8 | 31.6 | 363.78 | 353.30 | 358.54 | 349.28 | 329.44 |
| ITC | 14.5 | 38.7 | 31.6 | 400.05 | 388.52 | 394.29 | 349.28 | 329.44 |
| ITC | 17.25 | 45.7 | 31.6 | 436.34 | 423.77 | 430.05 | 349.28 | 329.44 |
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