ITC shares rise 2% after Q2 results. What are Jefferies, Nuvama and others saying?

Shares of FMCG major ITC gained 2% to Rs 271 on the NSE on Tuesday, despite reporting an 18.5% decline in consolidated net profit for the September quarter, as a sharp fall in earnings from its cigarette business weighed on overall profitability despite strong growth in its FMCG, agriculture and paper businesses.

The company’s consolidated net profit fell to Rs 4,229 crore in the second quarter of FY27 from Rs 5,187 crore in the same period last year. Net revenue rose 5% to Rs 20,454 crore from Rs 19,455 crore a year earlier.

The cigarette business remained the biggest drag on earnings during the quarter. Segment profit declined 27.2% to Rs 3,813 crore from Rs 5,241 crore in the corresponding period last year, while net cigarette revenue fell 21%. ITC’s non-cigarette FMCG business delivered its strongest revenue growth in 14 quarters, supported by higher sales across packaged foods, personal care and stationery products.

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Buy, sell or hold ITC shares?

Jefferies has maintained its Buy rating on ITC with a target price of Rs 350, indicating an upside of 32%. The brokerage said the operating environment remains uncertain amid geopolitical tensions, elevated crude and input costs, and inflationary pressures. However, Indian demand remained resilient across rural and urban markets, although uneven monsoons and El Niño pose risks to agricultural output and inflation.

Cigarette volumes and EBIT continue to decline due to sharp tax hikes, though ITC management has undertaken a series of measures to navigate the challenging conditions.

Calibrated price hikes are expected to support a gradual recovery, while significant tax arbitrage on illicit cigarettes persists. The brokerage trimmed its EPS estimates by 2-3% but expects a sequential improvement in cigarette trends.Nuvama upgraded its rating on ITC to Buy from Hold while retaining its target price of Rs 310 per share. The brokerage said the company’s Q2 performance was slightly ahead of estimates, despite pressure on the cigarette business following the tax increase.

Cigarette volumes declined 7-8%, while cigarette EBIT fell 27% year-on-year (YoY). However, both metrics improved sequentially, with cigarette EBIT rising 14% quarter-on-quarter (QoQ).

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Nuvama believes the cigarette business is nearing the bottom and expects EBIT to improve in the second half of FY27 as ITC adjusts to the higher tax burden. The brokerage also highlighted the FMCG business, which posted revenue growth of 16% and profit growth of 28%. This marked the fourth consecutive quarter of double-digit growth for the business.

Emkay retained its Add rating on ITC but cut its target price by 3% to Rs 300 per share. The brokerage said Q2 performance was slightly better than expected, with revenue coming in around 2% above estimates. However, EBITDA and profit declined 17% and 18%, respectively, following the excise duty increase.

Emkay noted that cigarette volumes fell around 8% during the quarter. ITC did not pass on the entire tax increase to consumers to prevent smokers from shifting towards smuggled cigarettes.

The brokerage also pointed to the FMCG business, which recorded 16% growth, its fastest pace in 14 quarters. Digital-first and organic brands continued to perform strongly, growing more than 70% YoY and crossing an annual recurring revenue (ARR) of Rs 1,800 crore.

However, Emkay believes weak cigarette volumes, uncertainty over further price hikes and the upcoming Union Budget could keep the stock under pressure.

DAM Capital maintained its Buy rating on ITC with a target price of Rs 355 per share. The brokerage said ITC’s EBITDA stood at Rs 5,160 crore, up 14% QoQ, and was ahead of its estimates. However, it remained 18% lower YoY.

DAM Capital estimates that around 80% of the required price increase has already been implemented, with the remaining increase likely by February-March 2027. It also expects leaf tobacco costs to become more favourable.

Disclaimer: This article has been written by Veer Sharma, who is not a SEBI-registered Research Analyst or an Investment Adviser. Veer Sharma and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here