ITC, Monthly - I don’t like cluttering charts with too many trendlines but this is a very interesting case. There is a long-term (10 year) horizontal resistance which it squeezed out of 2 weeks back. The medium term (5 year) downward sloping one from 2017 was broken out of 2-3 of months back. Short-term it has been on the rise but the rise has been noticeably slow compared to market’s post-pandemic performance. It appears all set to break out of the rising short-term (2 year) resistance trendline as well which should set it up for good momentum. Trading at 52 week highs when rest of market is struggling.
Does it deserve to take out the 2017 highs of 350? It is now at a 30% higher EBITDA and Rev and EBITDA now at all time highs. Cig. volumes have crossed pre-pandemic highs. There’s good performance from Agri and Paper businesses. Even Hotels should do well this year. Valuation is suppressed compared to long-term due to ESG (FIIs down from 20% to 10% last 5 yrs - but this is now climbing back up and is at 12%). The 85% div payout guided is a positive as well which should keep diworsification in check. Charts suggest we might get back to trading at 30 P/E levels as in the past which might make 400 as fair value.
Devyani, Weekly - Seems to be breaking out of 8 month downtrend post IPO highs. 140 appears to be a strong support (listing day open price) and was tested multiple times in the last 8 months.
Fundamentally this is a business with a very long runway and a hungry and capable management (credibility?). They have opened 246 new stores in the last FY (36% jump) which should stabilize and contribute to numbers going forward with improving SSSG. They have also guided for adding another 1000 stores in the next 4 years.
The growth wouldn’t have been exciting if not for the better performance of its units and improving EBITDA margins. The smaller delivery focused format in Pizza Hut appears to be helping PH chain. The effect of inflation as well is minimal as they have passed on price increases. At this point they have reached where Jubilant is in terms of OPM (23%) and are also profitable. Valuation isn’t very attractive but considering the growth potential, it might be justified. I think the market expansion done by Swiggy / Zomato will be capitalized by Jubilant / Devyani in the long run with shops closer to home offering easy takeout / cheaper delivery.
Varun Beverages. Weekly - Taking on a different trajectory of growth while breaking out of upwards trendline from last 2 yrs. Has undergone a tight upwards consolidation between 700-800 in the last 3 months. Problem with this stock is the liquidity considering there’s so little in terms of free float (mostly FII / DIIs) which despite 3 bonuses in 3 years (red flag?) still keeps liquidity tight, considering the low float pct-wise.
From the same group as Devyani, this business has compounded well in the last 6 years since listing (40% or so PAT CAGR) with stable ~20% margins. Growth has come from new products like Sting which is having breakneck growth, (440% YoY growth!), new geographies - in the last 10 yrs, VBL’s Pepsico sales volume contribution has gone from 21% to 85% as they have taken over from Pepsico and other franchises. Clearly there’s a lot of trust here between the two. Recently they have done a co-packing arrangement for Kurkure puffcorn (not distribution but this might be a foot-in-the-door for licensing Lays, Kurkure etc. in the long run). Valuation again isn’t very attractive but if your return expectation is moderate, there’s possibly a case to be made here.
Disc: Have positions in ITC from 260-280 levels, Devyani from 150-160 and VBL from 750-850 levels. I have shed the ultra-bearishness I have had since last Oct and have started buying where there’s long-term value + momentum