The tide appears to be turning for ITC Ltd. After months of pressure, investors looked past a bruising June-quarter performance in its cigarette business, sending the stock higher on Monday.
The cigarette segment's earnings before interest and tax (Ebit) fell 35% year-on-year to ₹3,341 crore in the June quarter (Q1FY27), reflecting the first full-quarter impact of the sharp tax increase that took effect on 1 February. But investors had largely braced for the hit. For comparison, cigarette Ebit at Godfrey Philips India and VST Industries declined 52% and 41%, respectively.
The cigarette business now contributes 76% of ITC's total segment Ebit, down from nearly 84% in FY26. “The profitability was worst hit in Q1 and within that, in April, followed by month-on-month improvement supported by the staggered price hikes,” said analysts from Nomura Financial Advisory and Securities (India).
Following higher taxes, ITC staggered price hikes to limit the risk of smokers shifting to illicit products. Even after cumulative price hikes exceeding 20%, cigarette net revenue fell 25% year-on-year. Volume erosion was also less than feared.
“ITC’s cigarette volume decline of 5% year-on-year in Q1FY27 (versus 2% and 14.4% fall for Godfrey Philips and VST) was much lower than the 10% decline that we/Street were expecting,” said the Nomura report dated 2 August.
Against that backdrop, Jefferies India expects management to gain confidence to push through additional price hikes while limiting volume declines to the mid-single digits for the rest of FY27. It also expects pressure on cigarette profitability to ease going ahead.
ITC’s Q1 cigarette Ebit decline “reflects only partial price hikes, especially those implemented towards the end of quarter & this should get better, ahead,” wrote Jefferies analysts in a report dated 1 August.
Cigarettes still dominate
The weak showing in cigarettes, ITC's largest profit engine, weighed on overall earnings, which missed Street expectations. Standalone net operating revenue fell 14.4% year-on-year to ₹16,907 crore, while Ebitda margin contracted 500 basis points to 26.7%.
The rest of the business, however, offered encouraging signs.
The FMCG business delivered 12% revenue growth and a 20% increase in Ebit. Dairy, snacks, noodles and frozen snacks grew more than 20%, while personal care posted mid-teen growth. The atta business was hurt by heatwaves, shortage of liquified petroleum gas (LPG) and benign wheat prices.
ITC's portfolio of digital-first and organic brands, including Yogabar, 24 Mantra, Prasuma, Meatigo and Mother Sparsh, is now running at an annual revenue rate of about ₹1,500 crore. Inflation in edible oils, fuel and packaging was partly offset by inventory hedges, pricing actions and cost controls.
The paperboards, paper and packaging business also performed well, with revenue rising 9% and Ebit jumping 38%, helped by stronger realizations, easing wood costs and a richer mix of value-added products.
The agri business remained the laggard. Revenue fell 17% because of weaker leaf tobacco demand, delayed wheat trading and disruptions arising from the West Asia conflict.
ITC shares were up about 2% on Monday but are still down 29% so far in 2026. “Although the demand environment remains resilient across rural and urban, the current geopolitical situation, commodity volatility, and monsoon, etc., remain key monitorables,” said the Jefferies report.
The brokerage has upgraded the stock to Buy, saying the resilience in cigarette volumes points to improving earnings momentum.