SMAR Daily Industry News

ITC Q2 Outlook: Cigarette Profit Down 29%, FMCG Grows

Analysts expect ITC's consolidated operating profit to tumble nearly 30% year-on-year in the September quarter, driven by an 8% decline in cigarette volumes and higher tax burdens that outpace price hikes. Nuvama Equities projects a 3% drop in total revenue, a 20% fall in EBITDA and a margin contraction of 619 basis points to about 28.5%.

Cigarette sales, the company's biggest profit source, are under pressure from the new tax regime and limited price adjustments. JM Financial sees segment EBIT falling 29%, while Nuvama anticipates a 27% EBIT decline and a 23% drop in net revenue. Only 75% of the cigarette portfolio has received price increases, leaving the regular-size filter-tipped segment especially weak.

Non-cigarette segments are expected to offset some weakness. Nuvama forecasts an 11% year-on-year revenue rise in the FMCG business, with a 9% EBIT increase; Motilal Oswal is more upbeat, projecting 14% revenue growth and a 10% EBIT rise, while margins stay stable. JM Financial also expects resilient FMCG sales and margins.

The paperboards, paper and packaging unit could see a 32% revenue surge YoY, according to Nuvama, driven by the Century Pulp and Paper acquisition that adds roughly 50% capacity and 30% sales, though profit contribution is modest at 5% due to lower margins. Motilal Oswal expects a more modest 11% revenue lift.

Agricultural operations are likely to post modest growth, with Nuvama estimating a 3% revenue increase and Motilal Oswal a 2% rise, after sharp declines in earlier quarters. Segment profit is expected to remain broadly unchanged, hinging on commodity trading, exports and global trade conditions.

Overall margin pressure is evident: Nuvama predicts gross margin to fall 458 basis points to around 50% and EBITDA margin to shrink to 28.5%. The company reported a 28% drop in standalone EBITDA and a 27% fall in profit after tax in the first quarter of FY27, attributing the decline to higher cigarette taxes. Management has indicated staggered price hikes and portfolio adjustments to protect market share and limit illicit cigarette risk.

Investors will watch the pace of further price increases, consumer demand trends, and the performance of non-cigarette businesses as ITC moves into the second half of FY27.

Why it matters

The steep profit dip highlights the impact of tax policy on India's leading consumer conglomerate and signals where growth may shift within the group.

FAQ

What decline is expected in ITC's cigarette volumes for Q2?
Analysts forecast an 8% year-on-year decline in cigarette volumes.

How much could ITC's consolidated EBITDA fall in the September quarter?
Nuvama projects a 20% decline in consolidated EBITDA.

What growth is expected in ITC's FMCG segment?
Nuvama expects 11% revenue growth and a 9% increase in segment EBIT; Motilal Oswal forecasts 14% revenue growth and a 10% EBIT rise.

How is the paper business expected to perform?
Nuvama sees a 32% year-on-year revenue increase, while Motilal Oswal expects an 11% rise.

Source: Economic Times Markets. See the original source for full details.