Despite a subdued second quarter of fiscal year 2026 (Q2FY26), analysts remain cautiously optimistic about ITC Ltd.’s outlook, citing stable cigarette volumes, broad-based FMCG growth, and easing input costs as key factors that could bolster margins in the upcoming months.
While the company’s Agri business continued to drag overall revenue, experts believe the worst of the headwinds are behind, paving the way for a gradual recovery across its various segments.
Muted Quarter, but Core Business Holds Up
ITC reported a 3.4% decline in standalone revenue year-on-year (Y-o-Y) to ₹18,020 crore during Q2FY26, primarily due to a significant 31% drop in Agri business revenues. Excluding Agri, the core business grew by a healthy 7%, driven by solid performances in cigarettes and FMCG segments. EBITDA increased by 2.1% Y-o-Y to ₹6,550 crore, with margins expanding 186 basis points to 34.7%, supported by disciplined cost management and favorable product mix.
Cigarette revenue grew 6.8% Y-o-Y, with most estimates indicating around 6% volume growth. Despite intense competitive pressure, analysts noted that premium offerings and stable taxation helped sustain momentum. The non-cigarette FMCG segment saw an 8% growth, with staples, dairy, and personal care products leading the charge.
Cigarette Segment Maintains Momentum; Margin Pressures Easing
Most brokerages highlighted steady cigarette volumes but acknowledged ongoing profitability pressures due to high leaf tobacco costs. Emkay Global reported a 170bps contraction in cigarette EBITDA margins to 70.7%, reflecting the absorption of high-cost inventories accumulated in FY23-24. However, with procurement prices stabilizing in the current crop cycle, industry experts expect input costs to benefit margins from FY27 onward.
Emkay maintained an ‘Add’ rating with a target price of ₹475, expecting cigarette earnings growth of around 6% in FY26, accelerating to low double digits in FY27 as input costs normalize.
Similarly, ICICI Securities pointed to stable industry trends, emphasizing that easing input costs and a favorable product mix are likely to support margin recovery in H2FY26. The brokerage retained an ‘Add’ rating with a target price of ₹450.
Nuvama Institutional Equities also noted the consistent 6% volume growth and increasing contribution from premium offerings, with improved margins and market leadership reinforcing ITC’s competitive position. The firm slightly lowered its FY27-28 earnings estimates but maintained a ‘Buy’ rating with a revised target price of ₹534.
FMCG Resilience and Challenges in Agri and Paper
Analysts agree that ITC’s non-cigarette FMCG division remains a bright spot, with sales rising 8.5% Y-o-Y, driven by staples, snacks, and personal care. Despite challenges from notebook sales, the focus on new product launches, stable taxation, and recovery in consumption are expected to boost momentum from H2FY26.
Digital-first and organic brands like Yogabar, Mother Sparsh, Prasuma, and others have clocked over ₹1,100 crore in annualized revenue, highlighting ITC’s expanding footprint in premium and health-conscious categories.
However, the Agri business continued to weigh on overall growth, declining 31% due to high base effects and shipment delays amid US tariff uncertainties. While segment Ebit remained flat, margins improved sharply owing to favorable product mix. The Paperboards and Packaging division grew 5% in revenue but faced a 21% decline in Ebit due to low-cost imports and high wood costs, though recent trends indicate a sequential recovery.
Outlook: Easing Costs and Policy Support to Drive Growth
Most brokerages foresee a strengthening earnings trajectory in H2FY26, supported by easing commodity inflation and demand revival. Stable cigarette taxation and improving cost dynamics are expected to cushion margins, while FMCG and Paper segments stand to benefit from normalized input prices and supportive policies.
ICICI Securities highlighted that “portfolio balance, stable taxation, and disciplined execution reinforce earnings resilience,” while Motilal Oswal expects cigarette margins to improve from Q4FY26 and paper margins to bottom out soon.
Despite the short-term challenges, analysts remain constructive, emphasizing ITC’s diversified portfolio, strong cash flows, and the potential for a steady recovery in the coming months.