ITC's Q2 FY26 Performance: Analysts Cautiously Optimistic on Margin Recovery

ITC's performance in the second quarter of the financial year 2026 (Q2 FY26) was subdued, with standalone revenue falling 3.4% year-on-year to ₹18,020 crore. This decline was largely driven by a significant 31% drop in revenue from the Agri business. However, excluding the Agri segment, the company's core businesses demonstrated resilience, with overall growth standing at a healthy 7% year-on-year. This growth was primarily fueled by stable cigarette volumes and broad-based expansion in the non-cigarette Fast-Moving Consumer Goods (FMCG) segment.

Despite the revenue dip, Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) rose by 2.1% year-on-year to ₹6,550 crore. Profitability saw an improvement, with margins expanding by 186 basis points year-on-year to 34.7%, attributed to cost discipline and a better product mix.

The cigarette business continued its steady momentum, with revenue growing 6.8% year-on-year, implying a 6% volume increase, supported by premium offerings and stable taxation. The non-cigarette FMCG business also performed well, expanding by approximately 7-8% year-on-year, driven by strong demand in staples, dairy, and personal care products.

Analysts noted that while high leaf tobacco costs had impacted cigarette margins, the situation is expected to improve from FY27 onwards as procurement prices moderate. The Agri business, though a drag, is believed to have seen the worst of its headwinds pass. The Paperboards and Packaging division showed revenue growth but faced margin pressure due to imports and wood costs.

Overall, most brokerages maintain a constructive outlook, with 'Add' or 'Buy' ratings on ITC. They anticipate earnings momentum to strengthen in the second half of FY26 as commodity inflation eases and demand recovers, with stable cigarette taxation and improving cost dynamics supporting margins.

Impact: This news directly impacts ITC's stock performance and investor sentiment. The mixed quarterly results, combined with analyst projections for margin improvement and recovery in key segments in the latter half of FY26, will be closely watched by investors. A potential easing of input costs and continued strength in FMCG could drive future earnings. This analysis helps investors understand the company's operational performance, segment contributions, and potential for stock appreciation. Impact Rating: 7/10

Definitions: FY26: Financial Year 2026, which runs from April 1, 2025, to March 31, 2026. Q2FY26: The second quarter of FY26, covering the period from July 1, 2025, to September 30, 2025. Y-o-Y: Year-on-Year, comparing performance to the same period in the previous year. FMCG: Fast-Moving Consumer Goods, which are everyday items sold quickly and at relatively low cost, such as packaged foods, toiletries, and beverages. EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a measure of a company's operating performance. Basis Points (bps): A unit of measure equal to one-hundredth of one percent (0.01%). For example, 186 bps is equivalent to 1.86%. Leaf Tobacco: Tobacco leaves that are processed and used as the primary raw material in cigarette manufacturing. ARR: Annualised Revenue Run-rate. An estimate of a company's total revenue over a year, based on its current revenue performance over a shorter period.