ITC shares flat after Q2 profit drops 20%; brokerages flag cigarette business pressure, but hail FMCG growth

CLSA maintained its 'Outperform' rating on ITC with a target price of Rs 390 per share, implying an upside of 46 percent from Monday's closing price. JPMorgan retained its 'Neutral' rating with a target price of Rs 310, expecting a gradual recovery in cigarette profitability as the company implements further price increases and portfolio changes. ITC stock had closed at Rs 266.40 on Monday, gaining 0.3 percent ahead of the quarterly earnings announcement.

The stock has declined 26.8 percent so far in 2026, significantly underperforming the Nifty 50, which has fallen 10.4 percent over the same period. ITC's market capitalisation stood at Rs 3.34 lakh crore at Monday's close. CLSA said that ITC's standalone revenue grew 3 percent year-on-year in the September quarter, while EBITDA declined 17 percent following an unprecedented increase in cigarette taxes.

Cigarette revenue declined 21 percent year-on-year and segment EBIT fell 27 percent, although the latter exceeded the brokerage's estimates by 4 percent. The brokerage said ITC was undertaking calibrated pricing and portfolio interventions to limit the migration of cigarette volumes to the illicit market. Meanwhile, non-cigarette revenue and EBITDA grew 18 percent and 23 percent, respectively, supported by the FMCG business, a recovery in paperboards and strong performance in the agri segment.

JPMorgan said ITC's second-quarter EBITDA exceeded estimates by 3 percent, driven by stronger non-cigarette businesses, while cigarette performance was broadly in line with expectations. The brokerage attributed the 27 percent year-on-year decline in cigarette EBIT to delayed price increases and an estimated 7-8 percent fall in volumes. It said that ITC was undertaking a portfolio mix reset, with the salience of RSFT and DSFT cigarette categories nearly converging.

JPMorgan expects portfolio restructuring and staggered price increases to gradually narrow the decline in cigarette EBIT. Further price hikes, particularly in the RSFT category, could help stabilise cigarette EBIT by the fourth quarter. ITC reported a 20.1 percent year-on-year decline in standalone net profit to Rs 4,137.12 crore for the September quarter, compared with Rs 5,180 crore in the corresponding period last year.

Revenue from operations rose 45 percent to Rs 28,317.7 crore, supported by strong growth in non-cigarette businesses and price increases in cigarettes following the tax hike. However, the company absorbed part of the cigarette tax increase to protect consumer demand and limit the migration of sales to illicit or tax-evaded products, putting pressure on profitability. Cigarette segment profit before interest and tax (PBIT) declined 27 percent to Rs 3,813.5 crore.

ITC said the cigarette business remained under pressure following the unprecedented tax increase, although its performance improved sequentially. The non-cigarette FMCG business continued to expand, with segment revenue rising 16 percent year-on-year to Rs 6,967.2 crore and PBIT increasing 28 percent to Rs 558.3 crore. The business recorded its strongest revenue growth in 14 quarters.