ITC shares rose 2% following the company's June quarter results, despite reporting a 27% year-on-year decline in standalone net profit. According to The Economic Times, Nomura upgraded the stock to Buy, citing an attractive risk-reward profile and potential recovery in cigarette profitability. The positive market response comes as investors focus on the company's resilient FMCG segment performance and strategic diversification efforts. Godfrey Phillips shares surged more than 16% over the past five sessions, while VST Industries gained 2% during the same period, as reported by Business Standard.
As reported by The Economic Times, ITC's June quarter net profit declined 27% year-on-year, with revenue growing 28% during the period. ITC's revenue from the cigarettes business increased by 73% year-on-year to ₹16,596.67 crore, which the company attributed to a 'staggered pricing approach'. However, gross revenue from the cigarettes segment actually fell 31.45% to ₹3,769, indicating a hit on underlying sales volumes. According to Motilal Oswal, standalone cigarette earnings fell 35% year-on-year in the quarter after the government sharply raised excise duty on tobacco products. ITC's June 2026 quarter earnings fell 27% year-on-year despite a 28% increase in gross revenue, as reported by ET Intelligence Group, reflecting the impact of higher cigarette taxes and West Asia-related disruptions.
According to Business Standard, effective February 1, the government raised GST on cigarettes and tobacco products to a flat 40%, replacing the compensation cess with a new additional excise duty ranging from ₹2,100-8,500 per 1,000 sticks depending on cigarette length. The cigarettes business, which contributes nearly 48% to the total business, remained a key drag on profitability despite revenue surging due to increased excise duties. The three companies together account for more than 90% of the domestic cigarette market, which has an estimated annual volume of over 100-120 billion sticks. Rather than pass on the entire tax increase to consumers in one go, which risked pushing smokers toward the illegal market, the company chose to raise prices in stages through the quarter, with roughly 70% of the price hikes required to offset the tax increase put through so far, according to Macquarie.
As reported by multiple brokerages including Macquarie, Jefferies, Motilal Oswal and Nomura, ITC chose to raise prices in stages through the quarter rather than passing on the entire tax increase to consumers, which risked pushing smokers toward the illegal market. Cigarette volumes held up better than expected, down an estimated 5% to high-single digits year-on-year against fears of a much steeper double-digit fall. Cigarette profitability potentially returning to pre-tax-hike levels as early as the fourth quarter of the financial year, according to Nomura. To manage the transition, the company introduced more than 30 new products in the quarter, launched an international brand priced to compete with rival offerings, and rolled out longer versions of its king-size cigarettes, giving smokers alternatives within its own portfolio rather than losing them to competitors or the unorganised market. Earnings per cigarette in the Deluxe segment are now similar to or better than in the Regular segment, which is expected to help as consumers shift toward cheaper variants.
Despite cigarette challenges, ITC's foods and personal care business continued to grow at a healthy clip, with standalone FMCG revenue growing 12% year-on-year, as reported by Motilal Oswal. Dairy, snacks, noodles and frozen snacks all grew more than 20%, while personal care posted mid-teen growth. The company's newer, digital-first and organic food brands crossed an annual sales run rate of ₹15 billion, growing strongly through the quarter. Paperboard and packaging business had a standout quarter, with sales growing 9% year-on-year and profit jumping 43%, and margin expanding to 9.4%. The improvement came from better pricing across both its flexible and carton packaging lines, along with a government-imposed floor price on imported paperboard that helped shield local producers from cheap imports. Despite a sharp rise in the cost of edible oil, packaging material and fuel, driven in part by the ongoing conflict in West Asia, the FMCG business managed to expand its profit margin slightly, helped by stocking up on inventory ahead of the price increases and by hedging against rising input costs.
