ITC Q2 Preview: Cigarettes May Cut PAT by Up to 28%

ITC’s Cigarette Reset Puts Q2 Earnings Under Pressure

Brokerages expect higher taxes and sharp price increases to weigh on cigarette volumes, while FMCG growth may offer a partial offset.

Tax-led price increases are testing cigarette demand

The cigarette business is the central drag in the Q2FY27 preview. Kotak Institutional Equities estimates that cigarette volumes fell 9% year on year, while Motilal Oswal Financial Services (MOFSL) sees an 8% decline. Both attribute the weakness to the higher-tax structure and the sharp price increases that followed.

Kotak says blended price increases over the past six months totalled 32-34%. While higher prices can help recover some of the additional tax burden, they may also make consumers more price-sensitive. That trade-off is visible in analysts’ expectations for lower volumes and weaker cigarette earnings. Kotak projects cigarette net sales and earnings before interest and tax (EBIT) to decline 20% and 27%, respectively; MOFSL expects cigarette revenue to fall 22% and EBIT to drop 28%.

FMCG growth offers support, but margins remain a watchpoint

The fast-moving consumer goods (FMCG) business is expected to grow despite pressure elsewhere. Kotak forecasts revenue growth of 10%, while MOFSL estimates 14%. Kotak sees the segment’s EBIT margin at 7%, down 40 basis points year on year, citing higher costs for edible and palm oil, packaging material and laminates. MOFSL expects flat margins alongside 10% EBIT growth.

The differing projections underline that sales growth alone may not determine the segment’s contribution to earnings: input costs and the ability to protect margins will matter too. For investors, the FMCG performance could help gauge whether strength in consumer products is translating into profit growth as the cigarette business absorbs the impact of taxation and pricing changes.

Other businesses show a mixed operating picture

Estimates for ITC’s other businesses are uneven. Kotak expects agri revenue to decline 3% year on year, with exports affected by issues in West Asia, and forecasts the segment’s EBIT margin at 10.8%, 70 basis points lower. In contrast, paperboards revenue is projected to grow 12% as demand gradually stabilises; its margin could improve 170 basis points to 10.3%.

These segments are not expected to erase cigarette weakness, but their performance could influence how sharply consolidated earnings contract. The results will also offer a company-level update on rural and urban demand, competitive intensity, raw material trends, and the outlook for agri and cigarettes—factors brokerages have identified as key monitorables.

Estimates vary, making the reported mix important

The brokerage forecasts point to a broad earnings decline, but not a single consensus outcome. Kotak estimates consolidated net sales of ₹17,129.2 crore, down 5%, EBITDA of ₹5,173 crore, down 17.3%, and adjusted PAT of ₹4,050.7 crore, down 20.4%. MOFSL forecasts net sales of ₹19,460 crore, flat year on year, EBITDA of ₹5,600 crore, down 16.3%, and PAT of ₹4,300 crore, down 15.1%.

Axis Direct’s estimates are more severe: revenue of ₹16,928 crore, down 4.8%; EBITDA of ₹4,445 crore, down 28.9%; and PAT of ₹3,688 crore, down 28.8%. The spread reflects different assumptions across the businesses and highlights why investors may focus on actual segment performance and management’s outlook, rather than treating one brokerage forecast as definitive. ITC was scheduled to announce results after market hours on November 2.

Key Highlights

• Brokerages expect cigarette volumes to decline 8-9% year on year.
• Kotak forecasts cigarette EBIT down 27%; MOFSL expects a 28% decline.
• FMCG revenue growth estimates range from 10% to 14%, with margin performance still important.
• Kotak sees paperboards improving, while agri revenue and margins are forecast to soften.
• Brokerage PAT estimates range from a 15.1% to a 28.8% year-on-year decline.

Investor Note: These figures are brokerage estimates ahead of ITC’s results, not reported outcomes. Investors may want to assess cigarette volumes and pricing alongside FMCG margins and management’s demand outlook before drawing conclusions about the quarter.