Chairman's Long-Term Strategy Revives Investor Interest as FMCG Business Scales Up, But Analysts Say Sustainable Stock Re-Rating Will Depend on Margin Expansion and Lower Reliance on Cigarettes

After witnessing one of the sharpest corrections among India's blue-chip stocks over the past two years, ITC Ltd. is once again finding itself at the centre of investor discussions. The renewed optimism comes not from its highly profitable cigarette business, but from an ambitious long-term roadmap for its Fast-Moving Consumer Goods (FMCG) business outlined by Chairman and Managing Director Sanjiv Puri during the company's Annual General Meeting (AGM).

Puri believes India's FMCG industry has the potential to grow into an ₹8 trillion market by 2035, presenting a massive opportunity for ITC to transform itself from a tobacco-led conglomerate into a diversified consumer products powerhouse.

While analysts agree that the strategy is directionally positive and strengthens ITC's long-term investment case, they also caution that the market is unlikely to assign higher valuations immediately. A meaningful re-rating will require sustained growth in the FMCG business, stronger profitability and a gradual reduction in the company's dependence on cigarettes.

ITC Stock Has Underperformed Despite Strong Fundamentals

ITC has historically been considered one of India's most stable blue-chip companies, known for its strong cash generation, high dividend payouts and dominant position in the cigarette industry.

However, shareholder returns have disappointed over the past two years.

ITC Stock Performance

The stock has fallen from its record high of ₹528.50, reached in September 2024, when the company's market capitalisation exceeded ₹6.5 trillion.

As of July 30, 2026, ITC's market value has declined to approximately ₹2.74 trillion, placing it among India's 25 largest listed companies.

The prolonged correction has been driven by slower earnings growth, concerns surrounding cigarette taxation, regulatory uncertainty and the market's cautious view on the pace of diversification.

Sanjiv Puri's ₹8 Trillion Opportunity

During the AGM, Sanjiv Puri outlined a long-term vision centred on India's expanding consumer economy.

According to management, India's FMCG sector is expected to become a ₹8 trillion market by 2035, driven by:

• Rising household incomes

• Rapid urbanisation

• Premium consumption

• Digital commerce

• Rural market expansion

• Growing middle-class spending

ITC plans to capture a larger share of this opportunity by accelerating investments across multiple consumer categories.

FMCG Business Is Becoming ITC's Second Growth Engine

Over the past decade, ITC has steadily expanded beyond cigarettes into packaged foods, personal care, beverages, dairy products, stationery and home care.

The company's FMCG-Others segment has now emerged as one of India's largest consumer businesses.

FMCG Business Performance (FY26)

The business now contributes approximately 30% of ITC's total revenue, making it the company's second-largest segment after cigarettes.

It also places ITC among India's leading diversified FMCG companies.

Premiumisation Strategy Takes Centre Stage

Management believes premium products will play an increasingly important role in future growth.

The company intends to focus on:

• Premium packaged foods

• Health and wellness products

• Premium personal care

• Value-added dairy

• Gourmet offerings

• Convenience foods

Premium products typically generate:

• Higher operating margins

• Better brand loyalty

• Stronger pricing power

• Improved profitability

This strategy is expected to enhance shareholder value over the long term.

Rural Expansion Remains a Major Growth Driver

India's rural economy continues to represent one of the largest untapped opportunities for FMCG companies.

ITC plans to deepen its rural presence by:

• Expanding distribution networks

• Launching affordable product variants

• Strengthening retail partnerships

• Leveraging digital supply chains

As rural incomes improve, the company expects consumer demand across food, personal care and household products to accelerate.

Innovation Continues to Drive Product Expansion

Another key pillar of ITC's growth strategy is continuous product innovation.

The company has consistently introduced new offerings across categories including:

• Packaged foods

• Snacks

• Ready-to-cook products

• Dairy

• Chocolates

• Personal care

• Hygiene products

Innovation enables ITC to compete more effectively with established FMCG leaders while addressing changing consumer preferences.

Cigarettes Continue to Dominate Earnings

Despite the growing FMCG business, cigarettes remain ITC's biggest profit contributor.

Currently:

• Cigarette business contributes around 46% of total revenue

• It accounts for an even larger share of operating profits

• Cash generated from tobacco continues funding investments across newer businesses

This heavy dependence remains one of the biggest reasons why analysts believe the market continues assigning a conglomerate discount to ITC's valuation.

Margin Expansion Will Determine Future Valuation

Analysts believe the biggest opportunity lies in improving FMCG profitability.

Although revenue growth has remained healthy, ITC's FMCG margins continue to trail those of larger peers such as Hindustan Unilever, Nestlé India and Britannia Industries.

As scale improves, analysts expect:

• Better operating leverage

• Higher EBITDA margins

• Improved return on capital employed

• Stronger free cash flow

• Enhanced return on equity

Margin expansion will likely become the key driver of any future valuation re-rating.

Analysts Remain Constructive but Patient

Market experts broadly welcomed management's long-term vision.

According to analysts, ITC's FMCG expansion demonstrates the company's commitment to creating a more balanced earnings profile.

However, they caution that:

• Transformation will take several years.

• Earnings contribution from FMCG remains relatively small.

• Tobacco continues driving profitability.

• Consistent execution will be essential.

The AGM commentary has improved sentiment, but investors are expected to focus on quarterly execution rather than long-term aspirations alone.

Why ITC Remains a Preferred Defensive Stock

Even amid recent underperformance, ITC continues to enjoy several structural advantages.

Key strengths include:

• Strong cash generation

• Consistent dividend payouts

• Healthy balance sheet

• Diversified business portfolio

• Robust return on capital

• Stable operating cash flows

These qualities continue to make ITC an attractive defensive holding during periods of market volatility.

Consumer Business Could Reshape ITC's Future

India's consumer economy is expected to remain one of the fastest-growing globally over the coming decade.

Several structural trends support ITC's long-term FMCG ambitions:

• Rising disposable incomes

• Premiumisation

• Urbanisation

• Digital commerce

• Organised retail expansion

• Higher consumption in rural India

If successfully executed, the FMCG business could gradually emerge as a much larger contributor to ITC's overall profitability.

Key Risks Investors Should Monitor

Despite the positive outlook, investors should closely watch:

• FMCG margin trajectory

• Market share gains

• Rural demand recovery

• Competitive intensity

• Commodity inflation

• Regulatory developments affecting cigarettes

• Capital allocation discipline

These factors will determine the pace of ITC's transformation.

What Could Trigger a Stock Re-Rating?

Analysts believe the following developments could drive a higher valuation over time:

• Sustained double-digit FMCG revenue growth

• Continued margin expansion

• Higher contribution from non-cigarette businesses

• Stable tobacco volumes

• Strong free cash flow generation

• Consistent earnings growth

Until these factors become more visible, the stock may continue trading largely as a defensive value play rather than a high-growth consumer company.

Market Outlook

ITC's vision of participating in an ₹8 trillion FMCG opportunity by 2035 signals a decisive shift in the company's long-term growth strategy. While cigarettes continue to provide strong profitability and financial stability, management's increasing emphasis on consumer products reflects an effort to build a more diversified and future-ready business capable of capitalising on India's expanding consumption economy.

Although the market has responded positively to the strategic direction, a sustained re-rating of the stock will ultimately depend on execution rather than ambition. Investors will closely monitor whether ITC can consistently grow its FMCG revenues, improve operating margins and reduce its dependence on tobacco earnings over the coming years. If the company succeeds in delivering these objectives while maintaining its strong cash generation and shareholder returns, ITC could strengthen its position as one of India's leading diversified consumer companies and unlock significant long-term value for investors.