Emkay Global has issued an 'Add' rating for ITC Ltd. with a target price of Rs 310, even as it forecasts a challenging period ahead for the company's cigarette division. The brokerage anticipates a high single-digit decline in cigarette volumes following an unprecedented tax hike implemented in February 2026, which led to significant price increases and a shift in product mix.
Cigarette Business Faces Headwinds
The domestic brokerage firm highlighted that the tax hike profoundly disrupted the cigarette industry. While ITC had a strong start to FY26 with resilient volume growth and new product launches—including 15 new cigarette products like Classic Clove and American Club Super Slims—the subsequent price adjustments were largely insufficient to offset the tax increase. This situation is expected to keep the segment's EBIT (Earnings Before Interest and Taxes) margin under pressure.
British American Tobacco (BAT) holds a significant 22.91 percent stake in ITC through various entities, including Tobacco Manufacturers India (17.79 percent), Myddleton Investment Company Ltd (3.88 percent), and Rothman International Enterprises (1.24 percent).
FMCG and Other Segments Show Resilience
In contrast to the cigarette business, ITC's FMCG-Others segment demonstrated healthy growth, with revenue increasing 10 percent year-on-year. The EBITDA margin for this segment also expanded by 20 basis points, reaching 10 percent. Branded Packaged Foods, which accounts for 84 percent of sales, was a primary driver of this growth, supported by market expansions in brands like Aashirvaad, Sunfeast, and Bingo!, along with broader market trends favoring premiumization.
The company also focused on strengthening its future product pipeline by launching 100 new products and scaling its digital acquisitions, achieving a revenue run rate of Rs 13.5 billion. Furthermore, ITC expanded its fresh food cloud-kitchen network, indicating a strategic push into new growth areas.
Mixed Performance in Paperboard and Agri Businesses
The Paperboard business initially faced margin pressure due to cheap imports and rising wood costs. However, it saw a recovery in the second half of FY26, aided by cooling raw material prices and protective import measures (MIP).
ITC's Agri business was impacted by geopolitical and policy headwinds. To sustain profitability, the company is focusing on high-margin, value-added adjacent businesses.
Emkay Global noted that ITC's overall return profile has consistently improved over recent years, driven by enhanced profitability and the recent demerger of its hotels business. The ITC stock currently trades at 18 times its estimated forward one-year earnings per share, which is one standard deviation below its five-year average.
Disclaimer: This article provides market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.