ITC Q1 profit falls 27% as cigarette tax hike, West Asia disruptions weigh on earnings

ITC Ltd. reported a 27.1% year-on-year decline in its standalone net profit for the first quarter ended June 30, 2026, as the sharp increase in excise duty on cigarettes and disruptions caused by the West Asia conflict weighed on profitability despite resilient performance in its non-cigarette FMCG business.

The diversified conglomerate posted a net profit of ₹3,579 crore for the quarter, compared with ₹4,911 crore a year ago. Revenue declined 14.4% to ₹16,908 crore from ₹19,761 crore, while EBITDA fell 27.9% to ₹4,514 crore. EBITDA margin contracted to 26.7% from 31.7% in the corresponding quarter last year.

Cigarette business hit by tax changes

ITC attributed the weaker performance primarily to the unprecedented increase in taxes on cigarettes implemented earlier this year. The company said it adopted a calibrated strategy to balance pricing, market share and the risk of consumers shifting to illicit trade.

"Strategic and calibrated response by the Cigarettes Business to the unprecedented increase in tax, balancing the interests of all stakeholders," the company said in its media statement.

It added that staggered pricing actions and over 30 portfolio interventions were undertaken to protect the consumer franchise while reinforcing its market position.

FMCG growth remains robust

Despite the earnings pressure, ITC's FMCG business continued to perform strongly. The company said the FMCG segment delivered 12% year-on-year revenue growth, while segment PBIT rose 21%.

Growth was led by dairy, snacks, noodles and frozen snacks, each recording over 20% growth, alongside mid-teen growth in personal care products. The paperboards, paper and packaging business also sustained its recovery, with segment revenue rising 9% and segment PBIT increasing 38%.

Meanwhile, the agri business delivered underlying revenue growth of 9%, adjusted for the impact of West Asia-related trade disruptions and timing differences in the wheat business.

Inflation, monsoon remain key watchpoints

The company said the June quarter was marked by heightened uncertainty due to the ongoing conflict in West Asia, which triggered sharp increases in crude oil-linked input costs and disrupted global trade and supply chains.

"While consumption demand, both in rural and urban markets, remained resilient during the quarter, imported inflation is a key watch-out in the near-term," ITC said.

The company added that a prolonged conflict in West Asia, coupled with weak monsoons and emerging El Niño conditions, could weigh on growth, inflation and India's current account, although it remains optimistic that strong macroeconomic fundamentals and government policy support will sustain economic growth.

Shares of ITC ended Friday's session 1.42% lower at ₹281 apiece on the NSE. The stock has fallen over 31% in the past year, substantially underperforming the benchmark Nifty 50 index during the same period.