Why ITC Could Be A Good Contra Bet

ITC fell from 408 to 340 in just three trading session after government raised excise duty on cigarettes by 25%  for cigarettes of length not exceeding 65 mm, and by 15% for cigarettes of other lengths. The downgrade by CLSA and other broking houses added further fuel to the fire.

Its no doubt that ITC is the biggest cigarette manufacturer in the country. But its not just a cigarette play alone. Have you seen these products in your day to day life ?

Ashirvaad Aata

itc aashirvaad

Sunfeast biscuit

sunfeast

Yippee noodles and pasta

itc yippee

Bingo

bingo-1-728

Fiama

Fiama-Di-Wills-Men-Range-Shot-

John Player menswear

john

Vivel

Vivel Skin Nourishing Range of Soaps

Classmates stationary products

classmate-products

These are some of the products that you might be using in your day to day life and you know how popular these products are. There are also some more popular products like engage deo, incense sticks, Aim match boxes,  Wills lifestyle , papercraft, fortune oil etc.

 ITC is the fastest growing FMCG company in the country. The new FMCG businesses comprising Branded Packaged Foods, Personal Care Products, Education and Stationery Products, Lifestyle Retailing,Incense Sticks (Agarbattis) and Safety Matches have grown at an impressive pace over the past several years, crossing ` 7000 crores mark during the year 2014.

ITC hotels is the second largest hotel chain in the country. Its in the IT business under the name ITC infotech. Its in the packaging and printing business as well.

ITC  revenue from cigarettes is around 62% as per march 2014 annual report. It has been continuously reducing its dependence on cigarette business and increasing its revenue through fmcg, hotels and other business. Despite the increase in excise duty every year the companies revenue from cigarette business has been showing steady growth. Those who are addicted to smoking they continue to smoke. Another funny thing about ITC is that it also makes and is one of the biggest seller of nicotine gums which is used to quit smoking addiction.

In every budget taxes and duties on cigarettes are increased. But the company sales and income kept growing.

Year 2010 2011 2012 2013 2014
Sales 18567.45 21120.83 25090.11 29901.27 33238.6
Profit before tax 5929.6 7112.84 8748.33 10684.18 12659.11
Net profit 4061 4987.6 6162.37 7418.39 8785.2

From the above data you can find that despite continuous increase in excise duty , ITC has been able to increase its profit.  It has compounded profit growth of 22%.,  return on equity 34%,  over the last five years. Its also a virtually debt free company.

Technical check 

The weekly charts are suggesting strong support at 330 levels which should not be breached. The stock is trading in a oversold territory on daily chart. Which shows its at a good level.

itc

Based on the above Fundamental and technical parameters I believe its a good contra bet.

Caution: This is not an investment advice to buy or sell. Please make your own decision or consult your financial adviser, as blindly acting on anyone else’s research and opinions can be injurious to your wealth. My analysis could be wrong. I have been wrong many times in the past.

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