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Is ITC stock good for the long term?

MoneyDhan > Blog > Is ITC stock good for the long term?

ITC is everyones favorite discussion topic stock in year 2020.

Firstly, Why would you want to buy ITC stocks?

ITC has been consistently growing year after year since 2000 till year 2019.

Its Market Value was just 18 thousand crore in year 2000.

Last year 2019, ITC was worth 3.63 lac crore !

The above chart shows its consistent growth for past 19 years.

How impact-ful this 19 years were?

If your kid is in LKG today at age 3.

In next 19 years, Your child will be a qualified Engineer from IIT !

Did you know what was the Compounded return from ITC in past 19 years?

When Bank Fixed Deposit rates were around 8 % average,
ITC was providing Compounded 17%.

18 Lac invested in year 2000 with ITC became;
3 crore 63 Lac by 2019.

So now you got to know what kinda beast of a return ITC has provided, for last 19 years with consistency. Note we want consistency. Not an one year miracle rally.

In 19 years no matter when you boarded the ITC uprise, you were blessed with positive returns.

Now what is the Buzz about ITC in year 2020?

ITC Crashed 50 % in year 2020 !

From a Market Value at 3.63 Lac crore,
Post corona-virus Induced market crash of march 2020…
ITC dropped till 1.83 Lac crore market Value. A 50% fall.

This kind of crash has never occurred with ITC in the past.

Last time ITC was at 1.83 Lac crore, That was in year 2012 (Check line chart above)
This crash can be viewed as if, you got a time machine.

Went back in time by 8 years.

What is the opportunity here with ITC?

IF ITC stock races back to market value of 3.63 lac crore from present 1.83 lac crore, this will be a increment of 1.80 lac crore.

You stand to gain 100% return. Double your investment — if ITC makes a rally to its previous all time high.

So people are not only keen to get 17% CAGR but sense an immediate opportunity to make 100% in next 2–3 years. ( As per popular belief)

One needs to ask,

What caused this 50% drop?

Assume You are ITC.
Out of every 100 rupees you earn, 46 rupees comes from cigarettes business.

Then during investor Presentation you are gonna say, cigarette business is under pressure due to

  • low smokers
  • affordability (High prices)
  • Government increasing Taxes relentlessly
  • 85% of the packet filled with warning.

So lndia has less smoker per capita per income than pakistan !

The impact of lower sales of cigarettes is shown in below column chart.

That blue bar has started to drop since 2018, 2019, and seems likely to go down into future.

Out of 100 rs that you earn, 46 rs is dwindling down faster.

This “Fear” of loss of revenue is the cause of 50% drop for ITC’s price.

Market says“Hey ITC i thought you were doing good with cigarettes. From 20k crore revenue in 2011, you topped at 35k crore per year revenue by 2017”

ITC, “ Yea thanks market. Thanks to recognizing that. from 1.8 Lac crore my market value went up till 3.6 lac crore thanks to that promising growth”

Market asks, “ Well things are falling apart in cigarettes. Am a bit skeptic now. I think your value must drop. Show me some revenue from other streams to compensate this loss”

So now you know what caused the drop.


Do we have a hope for revival in ITC revenues?

YES !

ITC is a big company with lots of smart, competent , well qualified people running it. They have humongous brain power and data. Don’t you think if we know it now, ITC management was well aware of this risk decades back?

They are already diversifying into other products.

FMCG is a ever growing bussiness for ITC. This is going to replace cigarette revenues, as per ITC management

Since we remember cigarettes revenue was falling,

whats up with FMCG revenue. Is it growing to replace the revenue fall in cigarette?

Yes. Since year 2006–07 FMCG revenue has been consistently higher than previous year. Its revenue is growing nonstop every year.

This data gives me some trust in ITC management’s statement that,

they will stop being depended on cigarette income and replace it with FMCG.


Do you have any view in ITC share?

Are you holding ITC.?

Are you aware of covered call in ITC startegy?

Maybe do protective PUT sell to accumulate ITC?

Connect with me. Lets brain storm.

www.Followus.com/sujith

 

About the author

Founder & Chief Strategist www.MoneyDhan.com