ITC reported strong Q4FY26 results, but brokerages remain divided on the stock as analysts weigh resilient FMCG growth against uncertainty over a recent sharp tax hike on cigarettes. The company's faster-moving consumer goods segment drove momentum, yet the real test lies ahead as the company manages the impact of significantly higher tobacco taxes on pricing strategy and market share.
Strong FMCG performance masks underlying concern
ITC's Fast-Moving Consumer Goods business delivered robust growth in Q4, with revenue climbing nearly 15% year-on-year. The gain came from staples, biscuits, dairy products, snacks and personal care categories. Margin expansion also improved during the quarter despite continued investments in branding and trade promotions. Yet this strength sits in the shadow of cigarette business dynamics. Brokerages acknowledge that Q4 results may not reflect the full tax impact because inventory stocking before the tax change took effect in February 2026 likely boosted cigarette sales in that period.
Staggered pricing leaves tax gap unresolved
The core problem is a mismatch between tax and price hikes. Effective cigarette taxes rose nearly 40%, yet ITC has implemented only partial price increases well below that level. Nomura notes the company has raised prices by roughly 20%, while JM Financial estimates price hikes at around 20% against a tax increase of 35-40 percent. Nomura warns that aggressive price increases risk pushing consumers toward illegal cigarette markets. To manage the gap, ITC has introduced premium cigarette variants in certain categories to protect profitability and curb illicit trade.
Brokerages split on near-term outlook
Jefferies maintained a Hold rating and lowered its target price to Rs 350 from Rs 400, saying the real test begins in Q1FY27 when the tax impact becomes fully visible. Nomura moved to a Reduce rating with a lower target of Rs 300, modeling a volume and EBIT decline of 5 percent and 15 percent year-on-year for FY27, citing ongoing margin pressure. JM Financial kept an Add rating at Rs 325, more confident that ITC's strategy to protect market share and launch premium variants will offset pressure. Motilal Oswal held a Neutral stance at Rs 335, warning that the cigarette tax pass-through remains incomplete and may keep earnings volatile through Q1 FY27.
Watch the volume picture ahead
All brokerages agree the next few quarters will be critical to understanding how cigarette volumes and margins respond to the tax shock. The speed and scale of ITC's price implementation, combined with competitive pressure from illicit trade, will shape both top-line growth and profitability in the formal cigarette market through the financial year.