Prabhudas Lilladher has upgraded ITC to 'Accumulate' with a price target of Rs 294, following the company's Q2 FY27 results. While cigarette volumes dropped 8% due to higher taxes, record-high growth in the FMCG segment offers a counterbalance. Investors are currently weighing the stock's defensive appeal and 5% dividend yield against risks like ongoing foreign institutional selling and tax volatility.
Brokerage firm Prabhudas Lilladher has revised its rating for ITC Limited to 'Accumulate' from 'Hold,' setting a price target of Rs 294. This shift comes immediately after the company declared its second-quarter earnings for fiscal year 2027 on November 2, which highlighted a challenging environment for its core cigarette business.
In its latest quarterly update, ITC reported a 20% decline in standalone net profit. The primary factor behind this earnings pressure was a significant hike in cigarette taxation, which directly impacted consumer demand. Specifically, the company saw cigarette volumes contract by approximately 8% year-on-year. While this is a notable headwind, analysts suggest that the company’s ability to pass on some of these costs to consumers has prevented an even sharper decline in operating profit.
Despite the pressure on the cigarette division, the brokerage highlighted the performance of ITC’s non-cigarette FMCG business. This segment, which includes food, personal care, and stationery products, recorded its fastest revenue growth in 14 quarters. For long-term investors, this indicates that the company’s strategy to reduce reliance on its tobacco-heavy revenue model is yielding results, even if the transition is gradual.
From a valuation perspective, the 'Accumulate' rating reflects a change in sentiment following a difficult year for the stock. ITC shares have faced a decline of roughly 26% year-to-date in 2026. The brokerage now views the stock as having limited downside risk, particularly for investors looking for stability. A key factor supporting this defensive view is ITC's dividend yield, which currently stands between 5% and 5.4%. This regular payout provides a buffer for shareholders, even during periods of slow capital appreciation.
However, significant risks remain that investors should consider. Foreign Institutional Investors (FIIs) have been consistently reducing their stake in the company, with holdings reaching a nine-quarter low. This sustained selling pressure has been a major drag on the stock price throughout 2026. Furthermore, future adjustments to cigarette taxation remain an unpredictable variable that could threaten both volumes and margins. Additionally, elevated raw material costs across the paper and FMCG businesses continue to pressure operating margins, forcing the company to maintain tight control over its supply chain and pricing.
Moving forward, the primary monitorables for shareholders will be the recovery trajectory of cigarette volumes and whether the FMCG segment can maintain its strong growth momentum. Investors will also look for management commentary regarding the impact of any further regulatory changes and the ability of the company to protect its profit margins amidst rising input costs.