ITC shares gained 2.72% on Monday following analyst upgrades that highlighted better-than-expected cigarette volume growth. While the company faced a difficult first quarter due to higher taxes, experts believe the impact on demand is less severe than initially feared. Investors are now tracking the company's ability to recover profit margins through staggered price adjustments.
Shares of ITC Ltd. saw a positive movement on Monday, trading 2.72% higher at ₹288.65 on the National Stock Exchange. This recovery follows recent analyst commentary that focused on the company’s ability to maintain cigarette volume sales despite a challenging first quarter where earnings were impacted by tax hikes.
Volume Resilience and Analyst Outlook
The market’s renewed interest in ITC appears driven by reports from major brokerage houses, including Nomura and Jefferies, which recently upgraded the stock. Analysts observed that cigarette volumes fell by approximately 5% year-on-year in the first quarter. While this decline is notable, it performed significantly better than the broader market expectations of a 10% drop. This suggests that the company’s consumer base has shown more stability than previously anticipated following recent price increases.
Impact of Tax Hikes on Profitability
The company’s recent financial results were heavily influenced by a significant increase in taxes on cigarettes, which led to a 25% drop in net revenue for the segment and a 35% decline in segment EBIT year-on-year. To manage these pressures, ITC has been implementing staggered price changes and launching over 30 new product variants. These steps are intended to protect its market share against illicit trade and help restore profitability. Financial analysts are watching the company’s progress, with many expecting EBIT per stick to return to levels seen before the tax hikes by the fourth quarter of fiscal year 2027.
Performance in Diversified Segments
Beyond its core cigarette business, ITC’s growth strategy relies on its non-cigarette FMCG segment, which reported a 12% increase in revenue. Furthermore, the company’s paper segment provided support during the quarter, posting a 38% rise in EBIT. These diversified revenue streams are becoming increasingly important for the company as it navigates fluctuations in its primary business. While firms like Nomura and Jefferies have expressed optimism with new buy ratings, other institutions such as JPMorgan and Macquarie remain neutral, citing uncertainties regarding how quickly cigarette earnings will return to previous growth levels.
Investors will now monitor the company’s ability to successfully pass on costs to consumers without causing a further drop in volume. Key factors for the coming quarters will include the effectiveness of the new product launches and whether the company can maintain momentum in its non-cigarette segments to offset potential ongoing pressure in the tobacco business.