FMCG giant ITC's June quarter of financial year 2027 (Q1FY27) earnings did little to change the Street's broader narrative. While the sharp tax-led hit to its cigarette business weighed on profitability, most brokerages believe the worst of the disruption could be behind the company.
Across brokerages, the common view was that how quickly ITC passes on the recent tax hikes and restores cigarette profitability will determine whether FY27 marks the start of a sustained recovery.
Brokerages were encouraged by resilient cigarette volumes, a strong showing from the FMCG business and continued improvement in paperboards, but remained divided on how quickly profitability can normalise.
ALSO READ: ITC Q1 Results: Net Profit Slides 27%, Misses Estimates; Revenue Declines
Jefferies turned more constructive by upgrading the stock, while others preferred to wait for clearer evidence that the cigarette business has stabilised.
Brokerages Decode
Macquarie
- Maintained Neutral and cut the target price to Rs 300 from Rs 330.
- Said the June quarter should not be viewed as the FY27 run-rate as tax hikes are still being passed through.
- Noted management is focused on preventing volume migration to illicit trade.
- Highlighted continued recovery in the paper business amid improving supply-demand dynamics.
- Said faster tax pass-through and a sharper recovery in cigarette EBIT remain the key catalysts.
JP Morgan
- Maintained Neutral and cut the target price to Rs 310 from Rs 325.
- Said the cigarette portfolio reset is underway and expects the first-quarter drag to narrow in the coming quarters.
- Highlighted healthy growth in the FMCG business excluding staples.
- Described the recovery in paperboards and packaging as encouraging.
- Said disruptions in the agribusiness segment continue to weigh on performance.
HSBC
- Maintained Hold and raised the target price to Rs 320 from Rs 310.
- Said cigarette EBIT declined because of both volume correction and weaker realisations.
- Noted the company has undertaken more than 30 interventions to protect its portfolio without pushing consumers toward illicit trade.
- Expects inflation in the FMCG business to intensify from the second quarter.
- Said uncertainty around future tax hikes continues to justify a cautious stance.
Goldman Sachs
- Maintained Neutral and cut the target price to Rs 290 from Rs 320.
- Said the earnings miss was driven by a steeper-than-expected decline in cigarette EBIT.
- Highlighted strong FMCG performance and improving paper margins.
- Expects a gradual recovery in cigarette profitability.
Jefferies
- Upgraded the stock to Buy from Hold with a target price of Rs 350.
- Said cigarette volume resilience was better than expected.
- Believes the earnings miss was largely due to calibrated price hikes and multiple portfolio interventions.
- Said encouraging volume trends should give management confidence to implement further price increases.
ITC's Q1 Performance
ITC reported a 14.4% year-on-year decline in consolidated net revenue to Rs 16,908 crore, while EBITDA fell 27.9% to Rs 4,514 crore and net profit declined 27.1% to Rs 3,579 crore. EBITDA margin contracted to 26.7% from 31.7% a year earlier.
The cigarette business remained under pressure following the recent tax increase, prompting the company to adopt staggered pricing and more than 30 portfolio interventions aimed at protecting market share and limiting migration to illicit trade.
Outside cigarettes, performance was considerably stronger. The FMCG business delivered 12% revenue growth, or 16% excluding staples, with segment profit rising 21%. Growth was led by dairy, snacks, noodles and frozen foods, while premium products, digital-first brands and new-age distribution channels continued to gain traction.
The paperboards, paper and packaging business extended its recovery, with revenue rising 9% and segment profit increasing 38%, supported by better realisations and easing wood costs. Meanwhile, the agribusiness continued to face disruptions from the West Asia conflict, although the company said underlying revenue remained resilient after adjusting for trade disruptions and timing differences in the wheat business.
Management cautioned that imported inflation, geopolitical tensions, monsoon variability and the risk of El Niño remain key monitorables for the rest of FY27, even as it expects the Indian economy to remain supported by resilient macroeconomic fundamentals.
ALSO READ: ITC Q1 Review: Cigarette Earnings Miss Keeps Motilal Oswal Cautious — Check Target Price
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