TANMAY OBSERVES!

ITC LTD CMP Rs 200.60

http://www.itcportal.com/

Probable Catalyst:-

Nifty starts trading in Free-float mode from June26 and stocks where promoter holding is low will get higher weight in Nifty, ITC is the major beneficiary and it is one of those few stocks which can gain attention of fund managers as they will have to adjust respective portfolios owing to weight-changes in Nifty. Now we will have a look at the technical and fundamental feasibility of investing in ITC.

Equity Rs 376 Cr Market Cap Rs 75374 Cr EPS Rs 8.65 D/E Ratio 0.01

ITC is one of India's foremost private sector companies with a market capitalisation of nearly US $ 19 billion (31Mar2009) and a turnover of over US $5.1 Billion. ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Personal Care, Stationery, Safety Matches and other FMCG products. While ITC is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining market  share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery. ITC employs over 25,000 people at more than 60 locations across India and has more than 3,75,000 shareholders.

ITC honoured globally - http://www.itcportal.com/sets/global_honours_frames.htm

ITC Group companies - http://www.itcportal.com/sets/group_com_frames.html

FY09 Performance:-

Notwithstanding turbulent market conditions, ITC Ltd. delivered a steady performance with Gross Turnover at Rs.23144 crores reflecting a growth of 8.4% over the previous year. Net Turnover at Rs.15388 crores grew by 10.3%, driven by a robust 20% growth in non-cigarette FMCG businesses and a healthy performance by the Paperboards, Paper & Packaging segments. This performance was achieved despite the increase in various taxes on cigarettes. 

Highlights of results:-

• Robust 20% growth in non-cigarette FMCG businesses.
• Segment revenues of Paperboards, Paper & Packaging grow by 23%.
• Agri business profits up by 98%.
• Biscuits sales grows by 14%.
• The Stationery business recorded a robust sales growth of 60%, positioning the Company as the largest marketer of notebooks in India.
• Net Turnover of ITC has risen by 16.8% CAGR over the last 9 years and PAT has grown by 17% over the same period.

Environment-friendly approach even being a cigarette-making company:-

ITC is Carbon Positive for the consecutive 4th year - greening over 90,000 hectares, Water Positive for the 7th year - benefiting 44,000 hectares with Soil and Water Conservation. Solid Waste Recycling Positive.

ITC expanding vastly to lessen dependence on Cigarettes:-

ITC is primarily looked at as a Cigarette-maker but statistics show that ITC has been able to reduce its dependence on that business. Though it still remains a flourishing business, the %age of revenues from Cigarettes has come down from above 80% in 2002 to just below 60% in 2009.  Cigarettes business has actually grown in this period but ITC has expanded so much in other areas like Agri, Biscuits, Stationery etc that automatically the Cigarettes revenue %age has come down but that business too has not saturated yet.

Though India ranks third in tobacco consumption in the world, a large percentage of them don't consume tobacco through cigarettes but through other means like bidis, chewing tobacco and other means. The ratio of bidis to cigarettes in India is nearly 10:1 and punitive taxation makes cigarette consumption a thing for the upper-middle class. Average Indian consumes only 129 cigarettes per annum against world average of 1213 

http://www.nationmaster.com/red/graph/hea_tob_cig_con-health-tobacco-cigarette-consumption&b_map=1

http://www.economist.com/displaystory.cfm?story_id=13766483

Global Tobacco Consumption Map http://www.scribd.com/doc/16604267/Global-Tobacco-Consumption-Map

Heard on the street:-

ITC, is likely to report a maiden profit this year, due to strong growth in sales of biscuits and staples, a senior company official said. The business, which sells brands, such as Sunfeast and Aashirwad, could report a revenue of over Rs 2,200 crore, up 25-26% over the previous year, the official added. “We could be turning profitable this year, if we see a growth of around 26% in FY10. Growth is the oxygen, even as we work on driving cost efficiencies,” the source said.

Technical Outlook:-

ITC has been an underperformer in recent rally as it has moved only sideways but if we look at the larger picture, it has outperformed. Both Nifty and ITC hit their AllTimeHighs (6357 and 239.40 respectively) in Jan2008 but now ITC has to rise just 19% to regain the  lost ground whereas Nifty has to gain more than 47% from here, so that way it is an outperformer for sure. Looking at graph, now it trades in an up-channel and breaking out of a triangle. Strong support exists around Rs 175-180 levels and breakout above Rs 210 looks near. ITC is a buy at current levels (Rs 200) and once again we can see Rs 235-240 levels on this stock. ITC has nation-wide presence with many properties in their name and is a defensive stock for any investor. Keep accumulating this stock in dips as it is still a growing company and will benefit by rising consumption levels in India.

Corporate Presentation:- http://www.scribd.com/doc/16604273/ITC-Corporate-Presentation


Nifty trades in Free-float mode:- http://www.thehindubusinessline.com/2009/06/20/stories/2009062051551000.htm
http://www.business-standard.com/india/news/nse-moves-towards-free-float/352831/