ITC share price rallies 50% since March, Apr-Jun results tomorrow; should you buy this stock?

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July 23, 2020 4:31 PM

ITC cigarettes value may decline 48 per cent on-year and a 10 per cent price hike in March will offset an adverse mix impact, due to downtrading

ITC share price, ITC stock priceThe stock has managed to form a strong support-base around 180 levels, but resistance is seen on the upside around 210-215 levels

FMCG major ITC looks to report a decline in net profit in the April-June quarter as the coronavirus-led lockdown from mid-March onwards impacted the sales of the company badly. ITC share price has gained 4.5 per cent in two days ahead of the April-June quarter earnings on Friday. From March lows of Rs 134.95 apiece, ITC stock price has rallied nearly 50 per cent. Analysts expect a recovery in sales in the April-June quarter given the unlock scenario. “ITC, has gained almost 3.35% this week, ahead of its quarterly results, to be announced tomorrow. The stock has managed to form a strong support-base around 180 levels, but resistance is seen on the upside around 210-215 levels. Its quarterly results hold significance, as the likely impact of COVID-19, would be visible in the results. This is one stock which has underperformed the markets for quite long now, clearly indicating that investor interest appears to be low at present,” Aamar Deo Singh, Head Advisory, Angel Broking, told Financial Express Online.

According to CARE Ratings, the long term outlook for the FMCG sector remains positive. It further highlighted that consumer spending shall accelerate supported by favourable dynamics in the country such as rising young population, increasing affluence, increasing digital connectivity and distribution, young population entering the workforce, growth in nuclear families, etc. “Free Cash Flow (FCF) generation (net of tax and capital expenditure) during the year stood at Rs 11,693 crore, representing a robust growth of 30% over the previous year. The company remains the clear leader in the FMCG industry in terms of annual FCF generation,” Narendra Solanki, Head Fundamental Research, Anand Rathi Shares and Stock Brokers, told Financial Express Online. He explained that looking at the recent trends, non-discretionary space is expected to recover faster. The stock with presence in these pockets presents a good opportunity for investors to have it in the portfolio.

Research and brokerage firm Sharekhan sees a 33.7 per cent fall in ITC’s profit at Rs 2,103 crore. It expects ITC sales to decline by 27.7 per cent to Rs 8,312 crore. “We expect cigarette sales volume to decline by 50% in Q1. FMCG business will deliver double-digit growth due to strong demand for atta, noodles and biscuits. The hotel’s business was a complete wash-out,” it said in a report.

Elara Capital expects ITC cigarettes value may decline 48 per cent on-year and a 10 per cent price hike in March will offset an adverse mix impact, due to downtrading. ITC–FMCG will grow 20 per cent on-year, led by double-digit growth in its atta, snacks, noodles and biscuit segments.

According to Motilal Oswal Financial Services, key things to watch out for in Q1 earnings include updates on share loss in capsule cigarettes and demand outlook for ‘Other-FMCG’ business.

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