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Informist, Tuesday, May 19, 2026

By Avishek Rakshit

KOLKATA – ITC Ltd.'s streak of volume growth in cigarettes, which it continued to register every quarter over the last two financial years, may get broken in the March quarter that may have a negative bearing on its quarterly financial performance. 

The country's largest cigarettes company is expected to report a flat on-year net profit growth in the March quarter to nearly INR 49 billion, according to the average of estimates from 10 brokerages. The company's revenue, however, is expected to increase 5.87% on year to nearly INR 183 billion, according to the average of estimates. On a sequential basis, the net profit is likely to decline 8.80% and the revenue is expected to increase 1.35%. The cigarettes-to-soaps major will declare its financial results for the quarter and year ended March on Thursday.

The highest estimate for the company's net profit is over INR 52.21 billion from Elara Securities (India) Pvt. Ltd. and the lowest of nearly INR 42.06 billion from Nirmal Bang Equities Pvt. Ltd. The highest estimate for revenue is by Motilal Oswal Financial Services Ltd. at INR 198.71 billion and the lowest by Nuvama Wealth Management Ltd. at INR 170.19 billion.

In February, to discourage smoking and bring the tax on cigarettes close to World Health Organization's recommendation of 75%, the government increased the goods and services tax on cigarettes to 40% from the earlier slab of 28% and also introduced a new Excise Duty range of INR 2,050-INR 8,500 per 1,000 sticks on cigarettes. Effectively, it increased the net tax on cigarettes to 60-70%, depending on the length, from the previous 50-55%.

The government's move led the country's largest cigarette maker, ITC--which has a 70% market share in the legal cigarettes industry--and Godfrey Phillips India Ltd.--the second-largest cigarette maker in India--to hike prices between 21% and 41% depending on the cigarette brand. 

For instance, a 10-stick pack of Gold Flake Kings or Classic is now priced at INR 240 from the earlier INR 170 and a 10-stick pack of Wills Navy Cut--a bestseller in east India--is now priced at INR 140 from the earlier INR 110. Gold Flake Premium--the go to brand of the lower middle-income group in the country--saw price increase to INR 115 from the earlier INR 95 for a 10-stick pack.

Such a huge price hike comes with negativities as well. Sector analysts estimate that ITC's cigarette volumes to have either remained flat on year or declined marginally in the March quarter. However, industry officials and distributors alike opine a 3.5% volume decline in sales in March across the country. For ITC, it is a huge blow. As much as 70% of its profits and 47% of the revenue continues to come from cigarettes despite the company diversifying into different fields and launching a strong consumer products portfolio. 

The tax hike led to a stock-up in January, followed by partial price pass-through in Feb–Mar, resulting in negative pricing for the quarter, Nuvama said in a report. While ITC has taken sharp price hikes across key brands in the range of INR 2 and INR 7 per stick, full pass through is yet to be realised. As a result, Nuvama expects ITC to take two–three more staggered price hikes over the coming months to offset the tax impact on cigarettes. 

Nuvama said that ITC's consumer goods business, which accounts for around 30% of the top line but contributes less than 1% to its profit, is likely to expand by 10% on year with earnings before interest and tax surging 37% on year driven by a favourable base and improving margins.

However, the continued war in West Asia could weigh on its agricultural trading business. Although ITC does not majorly focus on exports in this region, ITC exports tobacco leaves, wheat, and other agricultural commodities and the shipping routes pass through the West Asia. Sector analysts fear that the geo-political situation in West Asia and the subsequent effects on shipping and container availability to have dented ITC's exports in the March quarter. 

The growth of the paperboards business is expected to remain subdued but improve on quarter, according to sector analysts. It is on account of tough operating conditions such as subdued domestic demand, weak export markets, weaker net realisations, and cheap Chinese supplies flooding the markets.

ITC is expected to report an earnings before interest, tax, depreciation, and amortisation of around INR 61 billion in the March quarter, according to the average of 10 estimates. Brokerage Motilal Oswal's estimate for EBITDA is the highest at INR 68.06 billion and brokerage Nirmal Bang's estimate of around INR 52.71 billion is the lowest.

ITC's gross margin is likely to fall 46 basis points on year to 54.3% in the March quarter, while EBITDA margin is likely to decline 76 basis points on year to 34%, according to a note from Nuvama. 

Brokerages will look out for ITC's commentary on cigarette sales and consumer demand conditions after the company declares its financial results. 

Tuesday, shares of ITC ended flat at INR 310.30 on the National Stock Exchange. The shares are down nearly 3% since the company announced its December quarter earnings in January.

Of the 14 research reports on the company available with Informist, five have a 'buy' recommendation on the stock at an average target price of INR 377. Five brokerages have a 'hold' call on the stock at a target price of INR 355 and four have a 'sell' recommendation at a target price of INR 328.

The following are the Jan-Mar earnings estimates for ITC from 10 brokerages in descending order of the estimate of net profit in INR billion:

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Akul Nishant Akhoury

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