Yes, Let’s talk logically.
“Long term investor should only buy fundamentally strong stocks when they are in pain & in oversold territory” — My 10 years of Experience
Whenever we talk about long term investment then the first question that arises in our mind is “what are the odds that the company may go bankrupt?”.The answer can only be given with the help of Fundamental Analysis.
If the company has better fundamental and sustainable growth potential then one can trust the company and invest with confidence but the question is “When to buy”.
Suppose you have selected a company ‘A’ after your deep research which is now trading at 100 Rs. and you bought the stock, suddenly it fell down to 85 Rs over a period of 12 months and you still holding the stock expecting the stock to recover from the initial level.
What went wrong? The answer is timings, which can be answered by Technical Analysis. TA talks about when to buy a stock to get maximum benefits out of it.
So let’s talk about a Stock which is fundamentally strong and can be bought at current levels for the long term as per Fundamental and Technical Analysis.
ITC (Current Price: 212 Rs.)
Here I will discuss three distinct aspects
1) About ITC 2) Why ITC price is down? 3) Why ITC is good for long term investment.
1. About ITC (Brands, Business Segmentation and group Companies) ITC Limited is an Indian multinational conglomerate company headquartered in Kolkata, West Bengal. Established in 1910 as the ‘Imperial Tobacco Company of India Limited’, the company was renamed as the ‘India Tobacco Company Limited’ in 1970 and later to ‘I.T.C. Limited’ in 1974.
a) Foods: Aashirvaad, Sunfeast, Bingo!, Kitchens of India, YiPPee!, B Natural, mint-o, Candyman, GumOn, Fabelle, Sunbean, Sunfeast Wonderz Milk, ITC Master Chef, Farmland.
b) Personal Care: Essenza Di Wills, Dermafique, Fiama, Vivel, Engage, Superia, Nimyle, Savlon, Shower to Shower, Charmis
c) Education: Classmate, Paperkraft.
d) Matches and Agarbatti: AIM, Mangaldeep, Homelites
e) Lifestyle: WLS
f) Fast Moving Consumer Goods (FMCG): Cigarettes & Cigars, Foods Personal Care, Education, And Stationery Lifestyle, Retailing Safety, Matches, Agarbattis & Dhoop.
g) HOTELS | PAPERBOARDS & SPECIALTY PAPERS PACKAGING | AGRIBUSINESS: Agri Commodities & Rural Services, Agri-Business-ILTD, e-Choupal | INFORMATION TECHNOLOGY | ITC BRAND WORLD
MAJOR SUBSIDIARIES: ITC Infotech, Surya Nepal Private Limited, Landbase India Limited, Russell Credit Limited, Srinivasa Resorts Limited, Fortune Park Hotels Limited, Welcomhotels Lanka (Private) Limited, Sri Lanka Technico Pty Limited | OPERATIONAL JOINT VENTURES: Maharaja Heritage Resorts Ltd., ITC Essentra Limited |LISTED ASSOCIATE COMPANIES: Gujarat Hotels Limited, International Travel House Limited.
2) Why ITC price is down?
FM Nirmala Sitharaman in her budget for 2020–21 increased the National Calamity Contingent Duty on cigarettes. The overall excise duty now stands at Rs 200–250 for every thousand sticks without filter and Rs 440–735 on cigarettes with filter, depending on the length. That’s an increase from Rs 5 on every thousand sticks across cigarette categories. This is the second time that cigarettes saw a change in taxation since the implementation of Goods and Services Taxes in 2017.
The higher duty will increase the tax on ITC’s cigarette business by 10 percent.
Note: Cigarette contributed approx 42% of total revenue of ITC in 2018–19. (down 5% YoY), which has been compensated by other segments.
3. Why ITC is good for long term investment.
Top 10 reasons:
1) Compounded Sales Growth of 10 Years: 11.32%
2) Compounded Profit Growth of 10 Years: 14.33%.
3. Debt-free : ITC has no debt.
4. Pledged percentage: 0.00 %
5. Interest Coverage: 415.20 which means the company is 415 times capable of giving their short term liabilities. (ICR = EBIT/Interest exp)
6. Free cash flow 5years: 41,380 Cr.
7. ROCE: 34.62 % | ROE: 22.69 % | Current ratio: 3.25 | Quick ratio: 2.34 | NPM last year: 26.04 %
8. Cash flow activity
9. In response to hiking in tax ITC neutralized the burden and the company has hiked cigarette prices by 10–12%.
10. ITC is trading RSI of 33 (oversold territory). Stocks with Relative Strength Index (RSI) below and near to 30 are considered oversold. This implies that stock may rebound.
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