ITC Up 1% After Weak Q2 as Analysts See Gradual Cigarette Recovery

ITC’s Cigarette Business Sets the Pace for a Gradual Recovery

A sharp profit decline has not erased hopes for improvement, but higher taxes and falling cigarette volumes remain central risks.

Tax pressure dominates an uneven quarter

ITC reported consolidated net profit attributable to owners of ₹4,168.40 crore for Q2FY27, down 18.7% from ₹5,126.11 crore a year earlier. Consolidated net revenue increased 3.9% to ₹20,269 crore. The results show how sharply higher taxes affected the cigarette business even as other parts of the conglomerate recorded stronger performances.

Both revenue and profit were marginally above consensus estimates of ₹20,111 crore and ₹4,136 crore, respectively. Sequentially, revenue rose 6% from Q1FY27, but net profit slipped 5.1%. The comparison offers a mixed signal: sales improved from the previous quarter, while the bottom line remained under pressure.

ITC shares gained as much as 1.5% in intraday trade after the results, reaching ₹270. At 09:21 AM, they were up 0.24% at ₹266, while the Nifty 50 was 0.63% higher. The early move was therefore modest relative to the broader market, suggesting the results did not remove uncertainty around the company’s largest pressure point.

Cigarette volumes are the key recovery test

The brokerage assessments point to a recovery that may take time. PL Capital noted an 8% decline in cigarette volumes and said ITC continued to raise prices to pass on the excise burden. It estimated that more than 75-80% of that burden had been passed on so far, supporting its view that the business could recover steadily.

Jefferies, however, said cigarette volumes and EBIT continued to decline, reflecting the impact of steep tax increases. It expects calibrated price hikes to support gradual improvement, but flagged the significant tax advantage enjoyed by illicit cigarettes. This makes the pace of volume recovery uncertain: higher prices can help protect profitability, but may not quickly restore demand.

The distinction matters for investors because price increases and volume trends can pull performance in different directions. The analysts’ expectations are not company guidance; the next results will need to show whether price actions are translating into more stable operating trends.

Other businesses provide a counterweight

ITC’s performance outside cigarettes gives the results a broader dimension. Jefferies described FMCG and paperboards as strong in the quarter, with agriculture broadly in line. PL Capital also pointed to positive FMCG growth and margins across food, home and personal care, and stationery.

That support is not without risks. PL Capital said FMCG margins need monitoring as input costs rise. It also expects the paper business to benefit from the extension of the minimum import price, Century Paper integration and higher prices, while noting that input costs remain elevated. These factors could influence whether strength in non-cigarette segments is sustained.

What investors should watch next

Jefferies trimmed its earnings-per-share estimates by 2-3% but retained a Buy recommendation, while PL Capital upgraded its rating from Hold to Accumulate. Both see gradual improvement, not an immediate rebound. Jefferies also cited geopolitical tensions, elevated crude and input costs, and inflationary pressure. It said demand remained resilient across rural and urban markets, although uneven monsoons and El Niño posed risks to agricultural output and inflation.

For the stock, the central question is whether cigarette trends improve without fresh tax pressure, while FMCG and paperboards maintain their contribution. A potential increase in cigarette duty, as flagged by PL Capital, is another uncertainty. The quarter’s small estimate beat is encouraging, but it does not by itself settle the outlook for earnings.

Key Highlights

• Q2FY27 net profit fell 18.7% year on year to ₹4,168.40 crore.
• Revenue rose 3.9% to ₹20,269 crore, marginally exceeding consensus estimates.
• PL Capital cited an 8% drop in cigarette volumes; tax pass-through and pricing remain key factors.
• FMCG and paperboards were described as strong, while input costs remain a concern.
• Jefferies retained Buy; PL Capital upgraded its rating to Accumulate.

Investor Note: ITC’s diversified businesses offer some support, but the cigarette segment remains the main earnings swing factor. Investors may want to track volume trends, tax changes and input-cost pressure rather than treating analyst expectations of a gradual recovery as a confirmed turnaround.