ITC Q1 earnings hit by cigarette tax burden; FMCG, paper businesses offer support

ET Intelligence Group: ITC’s June 2026 quarter earnings reflected the impact of higher cigarette taxes and West Asia-related disruptions, with a 27% year-on-year fall in net profit despite 28% increase in gross revenue. However, resilient growth in the consumer segment and a strong recovery in the paperboards and packaging business helped cushion the impact. While categories such as dairy, snacks, noodles, frozen foods and personal care continued to gain traction, earnings are likely to remain under pressure in the near term as ITC gradually passes on the higher cigarette taxes through calibrated pricing actions. The company flagged input cost inflation, weak monsoon progress, lower kharif sowing and continued geopolitical uncertainty as key risks.

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The cigarettes business, which contributes nearly 48% to the total business, remained a key drag on profitability. The segment revenue surged due to an increase in excise duties from February 2026, but profit dropped as the company adopted a staggered pricing strategy to minimise consumer downtrading and prevent migration to illicit trade.

The FMCG-others segment, which contributes one-fifth to the entire business, delivered another strong quarter led by dairy, snacks, noodles and frozen foods, each registering more than 20% growth, alongside mid-teen growth in personal care products.

The agri business faced a challenging quarter due to trade disruptions linked to the West Asia conflict, weaker tobacco demand, and a high base. However, ITC stated the underlying revenue grew 9% after adjusting for wheat timing differences and geopolitical disruptions, aided by growth in value-added agri products such as spices and fruits and vegetables. Growth in paperboards, paper and packaging was aided by improved realisations, moderation in wood costs, stronger demand for value-added products and exports, and strong growth in the packaging business.

Elara Capital has reduced ITC’s earnings estimates by 11.7% and 4.4% for FY27 and FY28. Motilal Oswal Financial Services (MOFSL) has also cut FY27-28 EPS estimates by 2% as slower-than-expected increase in cigarette prices is likely to weigh on FY27 earnings.