ITC posts flat Q3 profit; brokerages cautious on cigarette tax, margin woes

In the December quarter, ITC's consolidated net profit (attributable to owners) came in at ₹4,931.19 crore, affected by a one-time provision related to the new labour codes and a base effect

ITC reported its Q3FY26 numbers on Thursday,after market hours. In the December quarter, the company’s consolidated net profit (attributable to owners) came in at  ₹4,931.19 crore, affected by a one-time provision related to the new labour codes and a base effect from an exceptional item in Q3 of 2024-25. In the year-ago period, net profit had stood at ₹4,934.8 crore.

 

The company reported consolidated revenue of ₹21,706.64 crore for Q3FY26, up 6.7 per cent from ₹20,349.96 crore a year ago. The board has also recommended an interim dividend of ₹6.5 per share for the financial year ending March 31, 2026. Check detailed result here

 

 

At 9:30 AM,  ITC’s share price was trading 0.64 per cent higher at ₹320.7 per share on BSE. In comparison, the BSE Sensex was down 0.51 per cent at 82,142.12.

Brokerages’ view on ITC

Emkay Global Financial Services | Reduce | Target: ₹350

Emkay Global maintained a cautious stance on ITC, citing significant headwinds from the new goods and services tax (GST) and excise rates effective February 1. While Q3 showed steady performance with 6 per cent revenue growth and 8 per cent cigarette net sales growth, the brokerage warned that the sharp tax hikes will necessitate substantial price increases, likely pressuring legal volumes and inviting competition from illegal trade. 

 

Although easing leaf tobacco prices offer some margin relief, Emkay expects ITC may opt for staggered price hikes to protect market share, which could squeeze cigarette margins into FY27. Despite strong double-digit growth in the non-cigarette fast-moving consumer goods (FMCG) segment—particularly in foods like biscuits and noodles—the brokerage emphasizes that ITC's ability to execute and manage volume-margin trade-offs in its core tobacco business will be the critical factor ahead.

ICICI Securities | Add | Target cut to ₹350 from ₹385

ICICI Securities noted ITC delivered an in-line performance in Q3FY26, with cigarette volumes growing year-on-year (Y-o-Y) and sequential improvement in the FMCG business. However, heightened competitive intensity in the cigarette market continues to exert pressure on margins. A key monitorable remains the near-term volume impact, with the brokerage’s expectation of a 13 per cent decline in cigarette volumes in FY27E.

 

The FMCG segment showed healthy traction, with revenue/Earnings before interest, tax, depreciation and amortisation (Ebitda) growth of 11 per cent/30 per cent Y-o-Y, led by better operating leverage. In contrast, agriculture and paperboard businesses remained muted.

 

Looking ahead, while analysts expect continued improvement in FMCG and some recovery in Paper, the sharp increase in cigarette taxes, coupled with persisting competitive intensity, is likely to weigh on both cigarette volumes and margins. This, in turn, may pose a risk of valuation de-rating despite the strength in non-cigarette segments.

 

Motilal Oswal Financial Services |  Neutral | Target cut to ₹365 from ₹319

The brokerage noted that it has not made any material changes to the earnings per share (EPS) estimates for FY26-28. ITC’s core cigarette business saw steady performance in Q3 and the FMCG business saw a healthy performance with strong growth in operating profit. The recently announced changes in GST and excise duty have led to a steep increase in cigarette

taxes, effective February 1, 2026. The stock has corrected 20 per cent since the announcement on January 1, 2026. 

 

Earnings pressure on cigarettes would take away the near-term catalysts (soft tobacco prices, recovery in FMCG, and Paper) and comfort on valuation. ITC has a full cigarette portfolio to better navigate the tax increase, but competitive pressure from illicit cigarettes will take a toll on the formal cigarette industry, the brokerage said.

 

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