ITC: 295-285 May Proved To Be Good Demand Zone After Recent Corrections ?

Looking at the chart, ITC (CMP:298), has good support around 297-292 & below that come 285-280 zone. Sustain below 280, ITC may further fall to 270 & consecutive closing below 270 it may crash to 250-230-210 zone in the near term under worst bear market scenario.

On the upside, sustaining above 297, immediate to short term target may be around 308-310 & 312-315. Consecutive closing above 315, ITC may target 320-327-335 zone in the medium term. Only sustaining above 335, it may scale 346-360 & 387-410 (FY:16-17) and 445 (FY:18) in the long term under bullish case scenario.

Thus, in short, near term range of ITC may be around 285-295 to 315-335.

Bottom Line: Technical Trading Levels (Positional)

	SL</>2	FROM SLR
		ITC	CMP	298
			T1	T2	T3	T4	T5	T6	T7	SLR
Strong >	295		301-308	312-315*	320	327	335*	346-351	360-387-410	<290
Weak <	290		285-280	270*	264	250	230*	226	210-204	>295

ITC suffered good corrections (more than 10%) after its poor Q4 results amid declining sales of cigarettes (its core business) due to various regulatory hurdles (http://asisjpg.blogspot.in/2015/05/itc-smoking-is-injurious-to-health-will.html).

Further, due to "Maggi" fiasco & monsoon woes and subsequent concerns of whole FMCG & packaged foods/instant noodles segment, ITC broke the key support level of 315-312 and eventually fall near 295, which is another strong demand zone.

Although, its core business of cigarettes is under immense regulatory hurdles, but in reality, implementation of ban on loose cigarettes might be near impossible in our country, especially for the numerous road side small "Pan-Bidi-Cigarette" shops. For the die-hard common smokers, although the present high price of cigarettes may put them in some type of  forced financial planning/cost cutting, they are practically buying cigarettes in 1-2-3 loose quantity on daily or even hourly basis by visiting the shops repeatedly rather than buying the whole packet at one go. As par recent trends, although middle aged health conscious people are slowly forced to abandon smoking, younger Facebook generations (15-30 age group), are increasingly addicted to smoking & other types of tobacco (more harmful than cigarette)   products (no doubt, a very disturbing trend).   

Thus, absolute sales revenues from cigarette divisions might surprise the street in coming quarters (also effect of higher prices effective from last quarter will be visible by FY-16/Q1).

Going ahead, ITC may introduce smaller packs of cigarettes (like 3-5 sticks) to bypass the present ban on selling loose cigarettes in many states (if they are permitted by the regulator at all). 

In any case, apart from its cigarette business, which contribute less than 50% of its revenue at present, for ITC FMCG might be its core business in the next 5-10 years, thanks to the foresight of its legendary chairman Mr. Y.C. Deveshwar, practically, who anticipated the present regulatory nightmare for cigarette business and started the FMCG division from scratch around a decade ago. Distribution strength & reach on account of cigarette selling chains is the core theme of its rapid and sustainable FMCG growth over the years.

Recently, ITC is trying all its best to promote its "Yippee" brand of instant noodles to fill the gap in the market for Nestle's "Maggi" and some other brands in this category. Till date, FSSAI did not raise any tough question to ITC regarding "Yippee" and other packaged foods and as par ITC, the product is "undoubtedly consistent with all the required regulatory compliance". Before the "Maggi" fiasco, Nestle has around 70% & ITC around 20% of market share for this instant noodles segment.

In addition to this, being a cash rich well managed company, organic or even, inorganic growth and appropriate diversification may not be a great headache for ITC to keep its future growth trajectory intact. 

Yesterday, the company announced a massive proposal of investments of around Rs.8000 cr in the new state of Telangana (which is poised for immense growth in the coming years). ITC has lined up nearly half of the said investments into its existing paper business there (expansion) and the rest will go to hotel business (to cater the expected growing demand for corporate/business travelers in the new IT Hub) and food processing industry. In the next phase of growth & diversification, ITC may also nature "Early Start Ups and Innovations".

Actual progress & distribution of monsoon & its subsequent effect on rural economy may not be so bad till date as estimated by the market and ITC, being an important FMCG player (a "Desi HUL" in the making ?), might see good days ahead. 

Also its hotel business may grow sequentially higher in the coming years, thanks to "Modinomics" (expected overall thrust in economic activity, smart cities, infrastructure push, tourism and subsequent growth in business & leisure travelers) apart from its normal growth in cigarette and other businesses (specially paper & food processing).

As par quick BG metrics, revised current median valuation of ITC might be around 345 & its projected fair valuations are around 365-388 under the current market parameters/conditions (FY:16-17 with expected sequentially higher growth in FMCG. Hotel, paper & Food Processing business, while substantially challenging environment in cigarette business).

SCRIP	EPS(TTM)	BV(Act)	P/E(AVG)	LONG TERM	SHORT TERM	MEDIAN VALUE	200-DEMA	10-DEMA
ITC	11.99	32.8	30.44	354.28	333.97	344.13	343.9	305.6

ITC

13.4

38.7

30.44

374.53

353.06

363.80

343.9

305.6

ITC

15.14

45.7

30.44

398.11

375.29

386.70

343.9

305.6