ITC

Q1 FY27 Review: Cigarette Tax Hikes Drag Growth Despite FMCG Resilience

missed market consensus estimates in Q1 FY27 as net revenue dropped 28% YoY and net profit contracted by 25%. The underperformance was primarily triggered by an unprecedented excise duty hike on cigarettes introduced in February 2026, which severely compressed overall top-line and operating margins. Cigarette Margins Hit Hard: Net cigarette revenue fell 22% YoY, causing segment EBIT margins to plummet from 57% to 23%. To safeguard market share and prevent consumers from shifting toward illicit tobacco, ITC chose to absorb most of the tax burden, taking only phased 20–25% price increases on select premium products. Resilient Non-Cigarette FMCG: Countering the tobacco downturn, the FMCG segment delivered strong 15% YoY top-line growth. ITC expanded its portfolio through strategic portfolio adjustments, premium category entries like "Coconut Cola" on quick-commerce platforms, and fast-growing digital-first organic brands. Paperboard Segment Recovery: The paperboard division emerged as an operational bright spot, expanding EBIT margins by over 200 basis points YoY. Higher realisations and healthy volume growth supported this turnaround, providing crucial support to overall profitability. Geopolitical & Macro Headwinds: Exogenous factors further dampened results. Disruptions from the West Asia conflict hurt agri-business exports, while elevated crude, commodity, and packaging costs squeezed margins. Near-term risks include potential El Niño heatwaves impacting rural inflation. Long-Term Structural Outlook: Despite stock corrections exceeding 30% over the past year, long-term fundamentals remain constructive. Trading at approximately 17 times FY28 estimated earnings with a steady dividend yield near 5%, ITC presents an appealing valuation once near-term regulatory hurdles ease.