ITC's stock fell 2% on Friday despite posting a 5% year-on-year gain in standalone net profit for the March quarter, signaling investor concern over higher cigarette taxes that brokers predict will squeeze earnings ahead.
The company reported standalone net profit of Rs 5,113 crore for Q4 compared with Rs 4,875 crore a year ago. Revenue from operations climbed 17% to Rs 21,695 crore from Rs 18,495 crore. Profit before tax rose 4% to Rs 6,694 crore, while total expenses jumped to Rs 15,656 crore from Rs 12,873 crore in the prior-year quarter.
Cigarettes still the profit engine
The cigarettes business remained ITC's largest profit driver. Cigarette segment revenue surged 32% to Rs 11,066 crore from Rs 8,400 crore a year ago, though much of that rise came from higher taxes flowing through gross sales. Segment profit from cigarettes increased 7% to Rs 5,488 crore from Rs 5,118 crore in Q4FY25.
Goldman Sachs and other Wall Street firms warned that the real damage from tax hikes will emerge later. Goldman Sachs expects the peak impact of the cigarette tax increase to hit in the first quarter of FY27 and estimates cigarette volumes could fall around 8%, while cigarette EBIT may drop nearly 17% during FY27. The bank kept its Neutral rating with a target price of Rs 330, implying a 7% upside.
Nomura, which downgraded the stock to Reduce with a target of Rs 300, painted a bleaker picture. The brokerage noted that the effective tax hike on cigarettes was around 40%, but ITC has implemented a weighted average price increase of only 25 to 30%. This gap is expected to trigger sharp margin contraction and EBIT decline in the first quarter. Nomura forecasts cigarette volumes will drop 5% year-on-year for FY27, with EBIT falling 15%.
FMCG and paper show resilience
Beyond cigarettes, other divisions offered brighter spots. The FMCG-others segment, which includes packaged foods, personal care, dairy, beverages, education and stationery, grew revenue 15% year-on-year to Rs 6,304 crore, with segment profit jumping 51% to Rs 521 crore from Rs 345 crore. Overall FMCG revenue rose 25% to Rs 17,370 crore, while total FMCG segment profit increased 10% to Rs 6,009 crore.
Goldman Sachs highlighted that the FMCG business delivered strong growth, with revenue rising 15% year-on-year and FMCG EBITDA margin improving 200 basis points. The paper business also recovered, with margins boosted by lower wood costs and benefits from anti-dumping duties.
Agri headwinds continue
The agri business dragged on performance. Morgan Stanley reported that agri revenue declined 16% year-on-year due to geopolitical disruptions, while Goldman Sachs noted that agri EBIT fell 29% year-on-year because of shipping disruptions in the Middle East. Both brokers expect these headwinds to persist.
For the full year FY26, ITC posted revenue of Rs 81,640 crore, up 10% from Rs 74,238 crore in FY25. Profit from continuing operations was Rs 20,286 crore compared with Rs 20,093 crore in the prior year.
Morgan Stanley maintained an Equal-weight rating with a target price of Rs 346, suggesting the operating environment could remain challenging. The brokerage expects the stock to remain range-bound in the near term given uncertainty around cigarette volume growth.