ITC stocks lights up Dalal Street with promise of more

By Sanam Mirchandani

MUMBAI: Brokerages raised their price targets on ITC after the fourth quarter results citing turnaround in cigarette volume growth, which turned positive in the three months ended March after a gap of 11 quarters.

Strong earnings, a special dividend and positive commentary from brokerages lifted the stock 7.52% to its seven-month high of Rs 354.75 intraday on Monday. The stock ended up 5.29% at Rs 347.40.

Gains in the heavyweight stock helped limit losses in the benchmark Sensex, which ended down 0.28% at 25,230.36 .

“This (cigarette volume growth) should encourage investors that finally the period of sharp volume decline is behind us, at least over the near term,” HSBC said in a note. With the stock trading at 22.5 times FY18 estimates, valuations are supportive as the stock is trading at a 33% discount to the broader consumer sector, Citigroup said, upgrading the stock to ‘buy’ from ‘neutral’. While brokerages are predicting an upside of up to 15% from Monday’s closing level over the next twelve months, the stock is likely to face resistance at Rs 362 in the short term.

“The upside is likely to be limited. Investors are taking covered call strategy in the stock, buying futures at Rs 330-335 and selling Rs 350 call option. In this strategy, if the stock falls, the call option sold will provide temporary cover,” said Manoj Vayalar, AVP-derivatives at Religare. In covered call strategy, a trader buys a futures contract long and sells a higher strike call option at the same time.