ITC is inarguably one of the best-performing stocks in 2023 as the stock has registered gains of 37.49% in less than 9 months of 2023!

 

 

The stock of ITC had entered a phase of consolidation since October 2022 as the stock was unable to effectively breach its resistance at around Rs 340. The stock was going through a similar situation throughout January 2023 as it faced correction due to adverse global trends due to the Federal Reserve’s rate hikes.

However, the stock was resilient as it did not face sharp declines which were triggered by the Adani-Hindenberg crisis. The stock saw a strong push from buyers in early February when its Q3FY23 earnings reported robust growth in profits and revenues.

This helped ITC breach through its resistance and resume its uptrend. Although Indian markets were suffering from the fallout of the Adani-Hindenberg saga, ITC kept climbing and scaled new lifetime highs while witnessing a few corrections due to corrections in the Indian market.

By the end of February, the stock was trading above Rs 360 and was in a clear uptrend. Although the stock witnessed a major correction since Indian markets fell due to the 2023 banking crisis (triggered by the collapse of banks like SVB and Silvergate) the stock kept climbing as buyers remained bullish on the stock.

Although it faced selling pressures at every resistance level (as shown below), the stock kept climbing as it recently hit a fresh lifetime high of Rs 497.70 per share, registering a growth of 19% in 2 months!! However, the stock fell on 24th July as the company confirmed its plans to demerge its Hotels business, which recently turned profitable.

Moreover, the stock kept declining in the first week of August 2023 as global markets were spooked by Fitch’s rating downgrade of the American government. This move kicked America out of the ‘Elite AAA’ club as indices all over the world registered declines. Nifty 50 and Sensex declined almost 2% each while ITC’s stock fell 3% during the week.

 

 

Putting aside the stock’s recent decline, ITC is one of the best performing stocks on the Indian market as it has grown 47% in a year!! There are a few reasons for ITC’s impressive climb:-

 

  • Firstly, all the company’s segments are seeing significant growth. Its Hotels business has seen the sharpest growth, while its paper and agribusiness has also seen robust growth, showing diversification in its operations.
  • Secondly, industry research suggests that the company’s valuations are cheap compared to other FMCGs, making it an attractive investment opportunity.
  • Thirdly, although the demerger of the Hotels business will result in an overall decline in its revenues and profits, this demerger will allow the company to improve the financial metrics of its FMCG business.
  • Lastly, overall sentiment in Indian equities is bullish. Since April 2023, global market sentiment has seen a significant boost. Moreover, India is considered particularly lucrative as both benchmark indices have grown over 10% since then!!!

What is ITC’s future outlook??

Fundamentally, the company is seeing strong growth. Its total revenues grew over 17% YoY to Rs 76,518 crores in FY23. EBITDA improved 26% YoY while the EBITDA margin grew 240bps in a year! Profits surged 25% as the EPS of the company saw a growth of 24%!!

Moreover, the company’s main business i.e. Cigarettes, saw a revenue growth of 20% during the year. However, its contribution to the company’s total revenues declined annually, indicating that ITC is lowering its dependence on that segment. The Hotels business turned profitable and saw its revenues double while its FMCG, Paper, and Agri-Business also saw significant growth!!

 

 

Technically, the stock is trading below its 5, 20, and 50-day averages but trading above its 100 and 200-day averages. Currently, at an RSI level of 42.42, the stock is neither overbought, or oversold.

In the first week of August, the stock continued to show weakness from the announcement of its Hotels’ business demerger. The share followed its trend of declining as soon as its RSI score touched 79. The downgrade of US’s credit rating resulted in a further selling pressure as the stock fell for the entire week!

The stock is nearing its support at Rs 449.75 as the level has acted as strong support recently. The stock is expected to take support at this level and consolidate for a while. However, if the company’s upcoming Q1FY24 results perform better than the estimates, the stock could see renewed interest from bulls and buying could resume.