ITC Shares Slip Despite Q4 Profit Rise Amid Concerns Over Cigarette Tax Hikes

ITC shares slipped on Friday despite a 5% rise in Q4 standalone profit and strong FMCG growth. Brokerages remained cautious, with Goldman Sachs, Morgan Stanley, and Nomura flagging pressure from cigarette tax hikes. While FMCG and paper segments showed resilience, analysts expect cigarette volume decline and margin stress to weigh on earnings.

Shares of cigarette maker ITC fell 2% to their day’s low of Rs 303 on the BSE on Friday despite reporting a 5% year-on-year rise in standalone net profit for the March quarter at Rs 5,113 crore, compared with Rs 4,875 crore in the corresponding period last year.

Revenue from operations rose 17% year-on-year to Rs 21,695 crore from Rs 18,495 crore a year ago. Profit before tax increased 4% to Rs 6,694 crore, while total expenses climbed to Rs 15,656 crore from Rs 12,873 crore in Q4FY25.

The cigarettes business remained ITC’s biggest profit driver during the quarter. Revenue from the FMCG-cigarettes segment rose 32% year-on-year to Rs 11,066 crore compared with Rs 8,400 crore in the year-ago period. Segment profit from the cigarette biz increased 7% to Rs 5,488 crore from Rs 5,118 crore in Q4FY25.

The sharp rise in revenue partly reflected the impact of higher taxes flowing through gross sales.

Revenue from the FMCG-others segment grew 15% year-on-year to Rs 6,304 crore from Rs 5,495 crore, while segment profit jumped nearly 51% to Rs 521 crore from Rs 345 crore last year. The segment includes packaged foods, personal care, dairy, beverages, education and stationery products, along with agarbattis.

Overall FMCG revenue rose 25% year-on-year to Rs 17,370 crore, while total FMCG segment profit increased 10% to Rs 6,009 crore.

For the full year FY26, ITC reported revenue from operations of Rs 81,640 crore, up 10% from Rs 74,238 crore in FY25. Profit from continuing operations stood at Rs 20,286 crore for the year, compared with Rs 20,093 crore in the previous financial year.

ITC shares: Should you buy, sell or hold?

Morgan Stanley maintained its “Equal-weight” rating on the stock with a target price of Rs 346, an upside of 12.3%. The Wall Street major said the operating environment could remain challenging following the recent cigarette tax hike. The brokerage also highlighted that the company’s agri business revenue declined 16% year-on-year due to geopolitical disruptions. Given the uncertainty around cigarette volume growth, Morgan Stanley expects the stock to remain range-bound in the near term.

Goldman Sachs retained its Neutral call with a target price of Rs 330 (7% upside) on the stock. The brokerage expects the peak impact of the cigarette tax hike to be felt in Q1FY27 and estimates cigarette volumes could decline by around 8%, while cigarette EBIT may fall nearly 17% during FY27.

Despite the pressure on cigarettes, Goldman Sachs highlighted that the FMCG business delivered strong growth, with revenue rising 15% year-on-year. FMCG EBITDA margin also improved by 200 basis points on-year.

Goldman Sachs further noted that margins in the paper business recovered due to lower wood costs and benefits from anti-dumping duties. However, agri business EBIT declined 29% year-on-year because of shipping disruptions in the Middle East, with the brokerage expecting these headwinds to continue in the near term.

Nomura also retained its Reduce rating on the stock while cutting the target price to Rs 300 from Rs 318, implying a downside of around 3%. The brokerage noted that under the earlier tax structure, the effective tax hike on cigarettes was around 40%, while ITC has so far implemented a weighted average price increase of nearly 25-30%. According to Nomura, this gap is likely to result in a sharp margin contraction and EBIT decline in the first quarter.

The brokerage pointed out that price hikes in the regular 69mm cigarette category remain below the increase in taxes, which is expected to weigh on margins in the near term. It also warned that sharp price increases could hurt cigarette volumes over the short term.

For FY27, Nomura expects cigarette volumes to decline 5% year-on-year, while EBIT could fall 15%.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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