ITC around 10-month lows but analysts still remain bullish: Here’s why

In Friday’s trading session, shares of the diversified conglomerate ITC showed resilience, closing nearly unchanged despite hitting a 10-month low earlier in the day. {Photo: Reuters}

In Friday’s trading session, shares of the diversified conglomerate ITC showed resilience, closing nearly unchanged despite hitting a 10-month low earlier in the day. The stock briefly slipped below the psychologically significant Rs 400 mark, marking its first dip to such levels in intraday trade since April 21, 2023.

Analysts are cautiously shifting towards a positive outlook on ITC, following reports indicating that London-based British American Tobacco (BAT) is contemplating a reduction of its stake in the Kolkata-based cigarette manufacturer by approximately 4 percent.

To facilitate the stake reduction, BAT has reportedly engaged Wall Street banks, including Bank of America and Citi, in its strategic move to trim its shareholding in the conglomerate with interests ranging from hotels to cigarettes.

Despite ITC shares experiencing a decline of approximately 13.5% in 2024, in contrast to the 1.5 percent rise in the Nifty50 index, analysts remain watchful. The weak performance of the conglomerate in the third quarter has failed to invigorate investor sentiment.

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Analysts speculate that the successful trimming of BAT’s stake could prove advantageous for both companies. This potential move may grant ITC Hotels greater autonomy while providing BAT with additional capital, reflecting a strategic realignment in the dynamic conglomerate’s portfolio.

Here is what top analysts predict on ITC

“ITC has been under pressure amid worries over a large supply of shares after an expected 4% stake sale by British American Tobacco (BAT). A near term top seems to be in place around Rs. 500-odd levels which happened just before the announcement of the demerger of the hotel business into a new entity in August 2023,” said Manish Chowdhury, Head of Research, StoxBox

Chowdhury also said that, however we remain constructive on the company from a medium to long term perspective owing to its strong brand recall and enormous runway for its FMCG business ahead. With inflation expected to moderate further ahead, especially the rural side, we expect volumes in the overall business to come back as we move forward. At the current valuation, we believe that most of the negatives are already priced in and investors could start considering adding the stock to their portfolio at every dip.

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Commenting on the same Atul Parakah, CEO of Bigul, the digital arm of brokerage Bonanza Portfolio said that ITC’s drop below the 400 mark is largely due to British American Tobacco (BAT), a longstanding investor, contemplating the sale of a portion of its stake for financial enhancement. Additionally, the company’s Q3 outcomes revealed cigarette volumes that are different from expectations. ITC is currently experiencing margin pressures due to a mixed demand scenario, with some challenges in the mass segment for both cigarettes and FMCG.

“ITC is currently priced at 405 creating a base near the support level of 400. The company’s fundamentals and Q3 results are strong. The stock has recently hit bottom and is consolidating near the support level of 400 with high trading volumes,” said Aditya Hujband on Stocktwits.

Hujband also added, The RSI level of the stock is below 30 indicating the over-selling zone. If the stock maintains its position above the support level, a potential pullback from the current level is anticipated, aiming for a target of 450 & 475 within three months.