Analysts Expect Weak Quarter for ITC Amid Declining Cigarette Volumes and Agri Business Pressure; FMCG Segment Seen Delivering Double-Digit Growth

Diversified conglomerate ITC Ltd is expected to report a challenging performance for the first quarter of FY27, with leading brokerage firms forecasting a double-digit decline in revenue, operating profit and net profit due to the impact of steep cigarette tax hikes and continued weakness in the agri business.

The company is scheduled to announce its Q1 FY27 financial results on July 31, when its Board of Directors will meet to approve the quarterly earnings.

According to estimates from major domestic brokerages, the cigarette business—ITC's largest profit contributor—is likely to witness a sharp decline in volumes and margins after the cumulative increase in tobacco taxation. While the non-cigarette FMCG business is expected to post healthy growth, it may not be sufficient to offset the weakness in cigarettes and agri operations.

Investors will also closely monitor management commentary on demand trends, pricing strategy, raw material costs and the outlook for the remainder of FY27.

Brokerages Expect Weak Start to FY27

Most research firms expect ITC to report one of its weakest quarterly performances in recent years, primarily due to regulatory changes affecting its core cigarette business.

Although the diversified nature of ITC's business provides some resilience, analysts believe the impact of higher taxes on cigarette sales will dominate the June quarter earnings.

The company has reportedly chosen a calibrated pricing strategy instead of fully passing on the tax burden to consumers, aiming to protect legal cigarette volumes and discourage consumers from shifting towards illicit tobacco products. However, this decision is expected to compress margins during the quarter.

Q1 FY27 Earnings Estimates

Different brokerages have projected varying revenue figures due to differences in accounting assumptions, but all expect a meaningful decline in profitability.

ITC Q1 FY27 Estimates

Despite the variation in revenue estimates, there is a clear consensus that EBITDA and profit after tax are likely to decline by around 11–13% on a year-on-year basis.

Cigarette Business Faces the Biggest Challenge

The cigarette segment, which contributes a significant portion of ITC's earnings, is expected to remain under severe pressure following the government's substantial increase in tobacco taxation.

Expected Cigarette Business Performance

• Revenue may decline by 18% YoY

• Cigarette volumes could fall 10–11%

• EBIT expected to decline 20–25%

• Margins likely to contract sharply

Brokerages believe consumers have become increasingly price-sensitive following repeated tax hikes, affecting legal cigarette sales.

To maintain its competitive position and prevent consumers from switching to illegal products, ITC has reportedly implemented staggered price increases instead of aggressively raising prices.

While this strategy may help preserve market share, it is expected to weigh on profitability in the near term.

FMCG Business Continues to Deliver Strong Growth

In contrast to the cigarette business, ITC's FMCG division is expected to remain one of the strongest performers within the company.

Brokerages estimate 12–15% revenue growth for the FMCG segment, supported by strong demand across packaged foods, personal care, home care and beverages.

Growth Drivers

• Expansion of premium product portfolio

• Strong performance of packaged foods

• Improved rural distribution

• Healthy demand across key brands

• Better operating leverage

Some analysts also expect modest margin expansion in the FMCG business due to favourable product mix and operating efficiencies.

Agri Business Likely to Remain Under Pressure

The agri business is expected to remain another weak area during the quarter.

According to analysts, several factors are weighing on the segment:

• Lower agricultural exports

• Shipping disruptions

• Policy-related uncertainties

• High base effect from last year

• Volatility in commodity prices

Brokerages estimate the segment's revenue could decline anywhere between 2% and 10% year-on-year, depending on export demand and trading activity.

Paper & Packaging Business to Deliver Moderate Growth

The Paperboards, Paper & Packaging division is expected to report stable performance despite a mixed demand environment.

Most analysts project revenue growth of around 6–10%, supported by:

• Continued packaging demand

• Better utilisation levels

• Stable domestic orders

• Improved product mix

Although not a major earnings driver, the segment is expected to provide some stability to ITC's diversified business portfolio.

Margins Expected to Contract

Operating profitability is expected to remain under pressure during the quarter.

Reasons for Margin Compression

• Higher cigarette taxation

• Limited pricing pass-through

• Inflation in FMCG input costs

• Weak profitability in the agri segment

• Increased competitive intensity

Expected EBITDA Margins

While estimates differ due to methodology, all brokerages anticipate lower margins compared to the same quarter last year.

Key Questions Investors Want Answered

Apart from the quarterly financial numbers, management commentary will be equally important.

Key Monitorables

• Outlook for cigarette volumes

• Future pricing strategy

• Rural demand recovery

• Urban consumption trends

• FMCG margin outlook

• Raw material inflation

• Agri export recovery

• Paper demand outlook

• Capital expenditure plans

• Dividend outlook

Management's guidance on these issues could determine investor sentiment after the results announcement.

How Has the Stock Performed?

ITC shares have remained under pressure in recent months amid concerns over slowing earnings growth and regulatory headwinds.

The stock was trading around ₹287 on Wednesday, well below its 52-week high of ₹427, reflecting cautious sentiment ahead of the quarterly earnings announcement.

Market participants will closely watch whether the company can provide confidence regarding earnings recovery during the second half of FY27.

Long-Term Growth Drivers Remain Intact

Despite the expected weak June quarter, analysts continue to believe ITC has several structural strengths that could support long-term growth.

Potential Growth Catalysts

• Recovery in cigarette volumes

• Expansion of premium FMCG brands

• Growth in packaged foods

• Improved rural consumption

• Recovery in agri exports

• Stable paper business

• Strong free cash flow generation

• Consistent dividend payouts

These factors could support earnings recovery once the impact of higher taxation moderates.

Snapshot of Expected Segment Performance

Factors That Could Influence the Stock After Results

Investors will closely evaluate:

• Whether cigarette volume decline is better than expected

• Margin recovery guidance

• Pricing strategy after tax hikes

• Rural consumption trends

• FMCG profitability

• Agri business recovery

• Capital allocation plans

• Dividend expectations

Positive commentary on any of these areas could help improve market sentiment despite a weak quarterly performance.

Market Outlook

ITC's June quarter is expected to reflect the short-term impact of higher cigarette taxation and weakness in the agri business, resulting in lower revenue growth and pressure on profitability. However, continued double-digit growth in the FMCG segment and the company's diversified business model are expected to provide some resilience. Going forward, investors will focus on management's strategy to restore cigarette volumes, improve margins and sustain growth across non-cigarette businesses, which will be key factors influencing the stock's performance in the coming quarters.