Whalesbook
ITC Limited shares are under scrutiny following the company's Q4FY26 earnings report. While the Fast-Moving Consumer Goods (FMCG) division posted significant growth, analysts are divided on the stock's prospects due to a recent substantial tax increase on cigarettes.
Brokerage Views Diverge
Major brokerage firms have issued varied reports. Jefferies maintained a 'Hold' rating, reducing its target price to ₹350 from ₹400. The firm cited a strong quarter driven by cigarettes and FMCG but warned that the March quarter might not fully capture the tax hike's impact. Jefferies stated, "The real test is in Q1FY27, when the impact of the sharp tax hike will be visible." The firm noted ITC's partial price hikes could affect volumes and margins, though the FMCG segment's nearly 15% revenue growth offered a positive counterpoint.
Nomura reiterated a 'Reduce' rating with a lowered target of ₹300. The brokerage anticipates ongoing margin pressure in the cigarette business, as ITC's price increases lag the nearly 40% effective tax hike to avoid ceding volume to illicit alternatives. Nomura forecasts a 5% volume and 15% Earnings Before Interest and Tax decline for FY27.
JM Financial, however, maintained an 'Add' rating with a target of ₹325. The firm believes ITC's strategy of staggered price hikes (around 20% against a 35-40% tax increase) and introducing premium variants aims to protect market share and curb illicit trade. JM Financial highlighted the FMCG business's robust 15% year-on-year sales growth and improving margins.
Motilal Oswal kept a 'Neutral' rating and a ₹335 target, expecting near-term earnings volatility due to an incomplete tax pass-through. While acknowledging the FMCG segment's strength, the firm pointed to competitive pressure from the illicit cigarette trade as a persistent concern.
Investor Watchlist
Investors will be closely monitoring ITC's upcoming quarters to gauge the actual impact of the cigarette tax increase on volumes and profitability. The company's ability to balance market share defense with margin preservation in its core business will be critical.