Can ITC’s boosters help it take off?
ITC Ltd.'s investors have been a worried lot this year. The company's stock has fallen a little over 9% since the year began, which is substantially higher than the 5% drop witnessed by the sectoral index Nifty FMCG in the same period. This weakness in the company's stock comes after it had consecutively outperformed the sectoral index in the previous two calendar years.
So what explains the downbeat performance now? Apparently, a slew of things are bothering investors. For instance, the recent stake sale by ITC's largest shareholder, British American Tobacco (BAT), had put its stock under pressure. But with the stake sale now in the rear view mirror, the supply overhang on the stock has cleared.
As things stand, BAT holds a 25.5% stake in ITC, and a further offloading seems unlikely. Moreover, an additional stake sale can only happen after the lock-in period of 180 days has passed. According to Sharekhan by BNP Paribas, factors like the uncertainties related to the stake sale being over and a good dividend distribution policy, should bring some comfort to ITC investors.
But does that give enough levers for the ITC stock to climb up, at least in the near-term? Quite unlikely. And the reason lies in the company's mainstay cigarette business, where volume in the December quarter (Q3FY24) has been pegged to have dropped by 2% year-on-year, after several quarters of growth. Any positive surprises on this front can also be ruled out in Q4FY24, given the high base of the segment; it grew about 12% in Q4FY23.
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