ITC Q2 FY27 Results Preview: Cigarette Tax Hikes Expected To Hit Earnings, With Profit Seen Falling Nearly 30% YoY

ITC will announce its September-quarter results on Monday, 2 November, with higher cigarette taxes likely to weigh on its earnings. Cigarette sales and profits are expected to take a hit, though growth in the FMCG business could help make up for some of the shortfall.

Brokerage estimates suggest cigarette volumes could fall around 8% year on year, while operating profit from the segment may decline by as much as 29%. The company has raised prices in response to higher taxes, but the increases may not be enough to offset the added cost without affecting demand.

Brokerage estimates suggest ITC's consolidated revenue could decline 3% year on year. Weakness in cigarettes and subdued agricultural operations are likely to weigh on the numbers, partly offset by FMCG growth. Consolidated earnings before interest, tax, depreciation and amortisation (EBITDA) are also expected to fall 20%, with the margin shrinking by 619 basis points to around 28.5%.

The extent of price increases and whether cigarette volumes begin to stabilise will be among the main points investors look for in the results.

At 9:44 AM today, ITC shares were trading at ₹269.05, up 1.30%.

FMCG Business May Offer Some Support

ITC's FMCG business is expected to remain a relatively stronger part of its portfolio.

Brokerage estimates indicate that revenue from the segment could grow 11% year on year in Q2 FY27. Growth stood at 12% in the June quarter and 6.9% in the September quarter last year.

The performance of packaged foods, personal care and other consumer products will be important as ITC continues to build businesses beyond cigarettes. The segment's growth could help offset some of the pressure from the company's largest profit contributor.

Paper And Agri Businesses: What Brokerage Estimates Indicate

ITC's paperboards, paper and packaging business is expected to see some improvement, supported by better demand and contributions from acquired assets.

The agricultural business, however, is likely to remain subdued. Brokerage estimates suggest revenue from the segment could rise 3% year on year. This would mark an improvement over the declines of 16.6% in Q1 FY27 and 31.2% in the corresponding quarter last year.

Cigarette Tax Burden Likely To Weigh On Margins

The biggest pressure on ITC's September-quarter earnings is expected to come from cigarettes. Brokerage forecasts indicate that the company's gross margin could contract by 458 basis points year on year to around 50%. EBITDA margin is projected to fall by 619 basis points to 28.5%.

The forecast 20% decline in consolidated EBITDA follows a difficult June quarter, when ITC's standalone EBITDA and profit after tax fell 28% and 27%, respectively, as the higher cigarette tax burden affected earnings.

After its Q1 results, ITC said it was raising prices in stages and adjusting its product mix to protect market share. The company also aimed to limit the shift of consumers towards illicit cigarettes.

Investors will be looking for an update on whether these price changes are helping recover margins without causing a further fall in volumes. Management's comments on cigarette demand, market share and the performance of its non-cigarette businesses will also be closely watched as the company enters the second half of FY27.

Also Read - KKR, Singtel And Tata Communications Explore $5.5 Billion Sale Of India's Data Centre Business STT GDC India