ITC Limited

BSE Code: 500875
NSE Code: ITC

ITC not only into cigarette business but has diversified portfolio which consist of FMCG, Hotels, Agri Business, Paperboards & Speciality Papers, Information Technology and Packaging

ITC is currently trading on multiyear low valuation and provides an attractive level to enter, with P/E of 33.4 and EPS of 8.40, I think this is right time to accumulate with full capacity of yours as all kinds of negative new are floating in market for this stock.

 

Technical View:

If you see ITC is trading at 33.40 multiples of PE which is quite high and if we compare it with last several years of PE with Mar2017 is highest so if we look at their cash flow and debt level will get the answer why itc demands such a high valuation.

It’s Debt to equity ratio is 0.0004:1 which is almost Nil.

On charts with its previous high of 367.5 currently it is consolidating at 256-260 and looks to me taking support near 256 which is coming at 23.6% retracement going below this will open a risk of almost 30pts and may go to previous low of 223.4 which looks a bit difficult to me. On 18 July, 2017 this index heavy weight opened gap down by 12.63 percent reason being the GST council has hiked the compensation cess on the filter and non-filter cigarettes, as this is going to impact the earnings of the cigarette companies as they will either absorb the tax impact or see some drop in volumes if they hike the prices, but still I see this is sticky business a smoker never complains or quite smoking on price hike, after this gap down opening it never tried to fill that gap and currently into bear grip. The strength of the bears is recognized by the unfilled gap. ITC stock facing significant selling pressure.

 

Year20172016201520142013
Key Ratios
PE Ratio33.4028.3027.1531.9732.92
Earnings Per Share8.407.737.997.366.26
Debt-Equity Ratio0.0004:10.001:10.001:10.002:10.003:1

Fundamental View:

FMCG:

ITC has rapidly scaled up presence in its newer FMCG businesses comprising Branded Packaged Foods, Lifestyle Retailing, Education and Stationery products, Agri Business, Personal Care products, Safety Matches and Incense Sticks (Agarbatti), crossing Rs. 9700 crore mark in 2015-16.

 

Sr. No.ProductsBrands
1AgarbattiMangaldeep
2Safety MatchesAim and i Kno
3Personal CareEssenza Di Wills, Fiama, Vivel, Engage, Superia, Savlon and Shower to shower
4Education and StationaryClassmate and Paperkraft
5Lifestyle RetailingWills Lifestyle and John Players
6FoodsAashirvaad, Bingo!, Yipee!, Kitchens of India, minto-o, B Natural, Candyman and Gumon
7Cigarettes & CigarsClassic, Gold flake, Capstan, Berkeley, Bristol, Flake, Silk Cut, Duke & Royal etc.

 

ITC’s core FMCG business sales growth of 10 percent aided by strong performance in branded packaged foods and personal care businesses. Its focus on integrating value chain from farm to consumer in the perishable segment aids its medium-term growth trajectory, also expected to benefit from government’s recent initiatives for food processing industry and logistic supply chain.

ITC had recently announced an investment of Rs 10,000 crore in food processing, and another Rs 25,000 crore was under progress in various areas, the impact of GST on trade has now normalised however there are some minor issues in wholesale channel.

As per CEO Sanjiv Puri “biggest headroom” for growth is in the fast-moving consumer goods business, where it can leverage internal capabilities.

I have seen ITC FMCG business is well diversified and extending the brand into new products and using the lessons learnt to build a sustainable framework for its food business

Today Aashirvaad, ITC says, has 75 per cent of the market Its main competitor is Shakti Bhog atta followed by Annapurna and Pilsbury. Two key food brands in the ITC portfolio are Aashirvaad and Sunfeast. Together they account for more than half the division’s sales revenues. The other brands in the portfolio are Bingo!, Yipee!, Kitchens of India, minto-o, B Natural, Candyman and Gumon. The Aashirvaad route is being taken for the company’s B-Natural brand of fruit juices. In March 2017 Y C Deveshwar, chairman of ITC said that in the next 15 years the company would run a Rs 1,00,000-crore FMCG business.

Hotels:

ITC Hotels properties are classified under four distinct brands:

  1. ITC Hotels has a tie-up with the ‘Luxury Collection’ for eleven of its hotels

ITC Grand Bharat in Gurgaon. ITC Grand Chola in Chennai, ITC Maurya in Delhi, ITC Maratha in Mumbai, ITC Sonar in Kolkata, ITC Grand Central in Mumbai, ITC Windsor & ITC Gardenia in Bengaluru, ITC Kakatiya in Hyderabad and ITC Mughal in Agra and ITC Rajputana in Jaipur.

 

  1. WelcomHotels offer five-star hospitality for the discerning business and leisure traveller.

under this brand namely, WelcomHotel Dwarka – New Delhi, WelcomHotel Bella Vista – Panchkula-Chandigarh, WelcomHotel Jodhpur – Jodhpur, WelcomHotel Rama International – Aurangabad, WelcomHotel Vadodara – Vadodara, WelcomHotel Grand Bay – Vishakhapatnam and many more

 

  1. Fortune Hotels operates mid-market to upscale properties in the first-class

 

  1. WelcomHeritage brings together a chain of palaces, forts, havelis and resorts

 

The IAQ (indoor air quality) enhancement technology that will meet WHO standards is first being implemented in New Delhi at the ITC Maurya, and this luxury chain of hotels plans to roll out this initiative across all its hotels in a phased manner also a dynamic plaque will display real time air quality, both inside and outside the hotel.

 

Apart from hotels ITC also holds Branded Accommodation, Branded Cuisine and Kaya Kalp Spa.

 

Paperboards and Specialty Papers:

The product range includes

Packaging Boards (Virgin Boards, Recycled Boards)

Specialty Boards (Poly Coated, Biodegradable Barrier)

Graphic Boards

Specialty Papers (Cigarette Tissues: Thin Printing, Packaging, Communication, Décor Papers and Niche)

 

Packaging:

It converts over 70,000 tonnes of paper, paperboard and laminates per annum into a variety of packaging solutions for the food & beverage, personal products, cigarette, liquor and consumer goods industries.

Product Lines are Carton Board Packaging, Flexible Packaging, Tobacco packaging and Green Packaging

 

Agri Business:

It currently focuses on exports and domestic trading of:

 

Feed Ingredients – Soyameal

Food Grains – Wheat & Wheat Flour, Rice, Pulses, Barley & Maize

Marine Products – Shrimps and Prawns

Processed Fruits – Fruit Purees/Concentrates, IQF/Frozen Fruits, Organic Fruit Products

Coffee

 

Information Technology:

ITC Infotech is a specialized global full service technology solutions provider, led by Business and Technology Consulting.

The R&D facility, the ITC Life Sciences and Technology Centre at Bengalaru, has filed over 351 patent applications in the area of agri-business, forestry, food and consumables.

 

Recommendation: (BUY)

I will recommend to start accumulating this stock from now onwards with stoploss of 221 with 2-3 years of view and one can book partial profit at 295, 319 and 360 or keep it for long term of more than 3yrs.