Buy when everyone is selling explain one of the principles of Warren Buffet. In current market one scrip suits the maxim : ITC .
ITC has been an underperformer, lagging the sensex in the past 12 months.Compared to the rise of 27 percent in the sensex , ITC is up only 6 percent. Reason for the lag is a negative tax in its key cigarettes business. But as per the risk-reward equation, it is a good time to accumulate.
- ITC valuation based on FY19 is now at 24-25 times compared to Hindustan Unilever at 45-46 times.
- ITC debt has decreased yoy, comparing the net worth FY18 debt is minimal.
- Given the condition earning growth yearly as well as quarterly looks consistent even though margins show some pressure.
Even though weak sentiment stems from govt. move to increase the cess on cigarettes, street expects cigarettes volume to drop marginally by 2-3 percent.Cigarettes contribute to 85 percent of earning before tax and interest or Ebtida for the company is bound to get impacted. The muted volume would continue for few more quarters but improvement is already on.
Moreover, its strong focus on FMCG with a long-term goal of 1 trillion rupees by 2030 clearly show other opportunities for growth.Among other businesses, hotels too have shown improvement, while paper business profit surge 18 percent yoy. ITC position in paper industry is immune to potential headwind.
Furthermore, Govt. is unlikely to raise a tax on cigarettes again as it would encourage grey market.
So overall business environment is in improvement phase.
Stay tuned. As in next few articles best multibagger stocks of 2018 will be discussed.
Experience of 8 years in stock investment. I learned everything by making a lot of mistakes and losing a good amount of money, I am here to make sure you don’t lose on either: Hope or Money.