ITC shares jump nearly 4% despite weak Q1; here’s why

Shares of ITC climbed nearly 4% on Monday, in sync with the positive broader market, despite the FMCG major reporting a weak June quarter. The sentiment was boosted as investors looked beyond the near-term earnings hit and focused on its attractive valuation, resilient FMCG performance, and prospects of a gradual recovery in the cigarette business.

ITC shares rose as much as 3.8% to ₹292.50 on the BSE, taking its market capitalisation to ₹3.65 lakh crore. The FMCG heavyweight emerged as the top gainer on the Sensex pack, followed by IndiGo, Infosys, TCS, Bajaj FinServ, SBI and others.

The blue-chip stock rallied even after the company reported a 27.1% year-on-year decline in standalone net profit to ₹3,579 crore for the quarter ended June 30, 2026. Revenue fell 14.4% to ₹16,908 crore, while EBITDA declined 27.9% to ₹4,514 crore, with margins contracting to 26.7% from 31.7% a year ago.

The earnings were impacted primarily by the steep increase in cigarette excise duty announced earlier this year and disruptions to the agri business arising from the West Asia conflict. Cigarette sales declined sharply as ITC adopted a staggered pricing strategy to balance pricing, market share and discourage a shift toward illicit trade.

Despite the pressure on its core cigarette business, the company delivered robust growth in its non-cigarette FMCG segment, where revenue increased 12% year-on-year and segment PBIT rose 21%. Growth was led by dairy, snacks, noodles and frozen foods, while the paperboards, paper and packaging business also posted a strong recovery, with segment PBIT rising 38%.

What brokerages say

Motilal Oswal maintained its 'Neutral' rating with a target price of ₹300, cutting FY27 and FY28 EPS estimates by 2%. The brokerage believes the slower-than-expected cigarette price hikes will keep earnings volatile in the near term, although the strategy may help limit consumer migration to illicit cigarettes. It expects strong FMCG and paper performance to be offset by pressure in the cigarette business.

Emkay Global retained its 'Add' rating with a target price of ₹310. It noted that the June-quarter results missed consensus estimates, with cigarette EBIT falling 35% year-on-year, though cigarette volumes declined by a mid-single-digit percentage, better than expected. The brokerage expects profitability to improve gradually as further price hikes take effect and believes uncertainty over cigarette pricing will remain an overhang.

Elara Capital reiterated its 'Accumulate' rating but lowered its target price to ₹320 from ₹335 after cutting FY27 and FY28 earnings estimates by 11.7% and 4.4%, respectively. The brokerage expects the full impact of the price hikes on volumes to become visible in the September quarter and believes normalisation in cigarette margins will take longer than earlier anticipated.

JM Financial also maintained its 'Add' rating while trimming its target price to ₹320 from ₹325. It said cigarette volumes were more resilient than expected despite a steep 25% price increase, but adverse product mix and staggered price hikes weighed on profitability. The brokerage expects EBIT pressure to moderate in the coming quarters and believes ITC's attractive valuation and dividend yield will limit downside risks.

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