ITC shares surge 9% in five sessions: What is fuelling the rally in the cigarette major?

Shares of ITC extended their winning streak on Wednesday, gaining over 9% in five trading sessions amid value buying following the September-quarter earnings announcement. The rally comes despite the cigarette-to-FMCG conglomerate reporting a weak set of Q2 FY27 results, with consolidated profit declining nearly 19% year-on-year and EBITDA margins contracting sharply.

On Wednesday, ITC shares surged as much as 3.7% to an intraday high of ₹283.50 on the BSE, taking its market capitalisation to around ₹3.51 lakh crore. The stock has gained around 6% since the company announced its Q2 FY27 results after market hours on Monday.

The FMCG heavyweight has gained nearly 12% from its 52-week low of ₹252.80, touched during intraday trade on October 28, 2026. Despite the recent recovery, the FMCG stock remains down nearly 32% from its 52-week high of ₹414.65, recorded on November 4, 2025.

Technically, the stock has moved above its five-day, 20-day, 50-day and 100-day moving averages, although it continues to trade below its 200-day moving average.

For September quarter of FY27, ITC reported consolidated profit at ₹4,168.40 crore, compared with ₹5,126.11 crore a year ago. Consolidated EBITDA fell 15.7% to ₹5,644.83 crore, while EBITDA margin contracted sharply to 27.9% from 34.3%, reflecting pressure on operating profitability.

Revenue from operations, however, rose 43.9% to ₹30,578.40 crore, largely due to higher excise duty on cigarettes. Excluding excise duty, revenue grew by 3.9% to ₹20,268.63 crore from ₹19,501.63 crore in the year-ago quarter.

What’s behind the rally?

One of the key factors supporting sentiment is the expected gradual recovery in the profitability of ITC's cigarette business, which remains a significant contributor to the company's earnings.

ITC's cigarette business has been under pressure following the recent increase in taxes, which has affected legal industry volumes. The company has responded through calibrated price increases to offset the higher tax burden while attempting to limit consumer migration to illicit products.

HDFC Securities expects cigarette EBIT per stick to recover almost completely by Q4 FY27, supported by pricing actions and stable leaf tobacco costs. The brokerage estimates that around 80% of the planned price increases have already been implemented.

It expects the decline in cigarette EBIT to moderate progressively through the remainder of FY27 as newly priced packs enter the distribution network.

However, the recovery in absolute earnings will depend on how cigarette volumes respond to higher prices. The brokerage estimates an approximately 8% decline in cigarette volumes in Q2, while noting scope for gradual improvement.

FMCG, paper businesses provide support

The performance of ITC's non-cigarette businesses is another factor supporting its medium-term growth outlook.

The company's other FMCG business reported strong growth across categories, including biscuits, snacks, noodles, spices, salt, frozen snacks, homecare and notebooks. Several of these categories recorded growth of more than 20%, while dairy and personal wash delivered high-teen growth.

HDFC Securities highlighted that the other FMCG segment delivered 19% revenue growth and 31% EBIT growth, with margins expanding 80 basis points year-on-year to 8%.

The paperboards, paper and packaging business also showed signs of recovery, with revenue increasing 36% and segment profit before interest and tax rising 48%. The acquisition of Century Pulp and Paper, completed on August 1, is also expected to strengthen the segment's contribution.

The agri-business recorded 12% revenue growth, supported by value-added products and leaf tobacco exports, although geopolitical disruptions and higher freight costs continued to affect exports.

What brokerages recommend

Religare Broking maintains a BUY rating with a target price of ₹408, citing ITC's diversified portfolio, strong FMCG growth, improving paper business and expansion in value-added products. It expects revenue, EBITDA and PAT to grow at a CAGR of 7.2%, 5.1% and 4.8%, respectively, over FY26-FY28.

Elara Securities has reiterated its ‘Accumulate’ rating, although it has lowered its sum-of-the-parts target price to ₹290 from ₹320. The brokerage expects cigarette profitability to improve gradually as pricing actions gain traction but flags the rising share of illicit cigarette trade as a key risk.

Axis Securities, meanwhile, maintains a HOLD rating with a revised target price of ₹260, down from ₹285 earlier. It has cut its earnings estimates amid persistent margin pressure, higher input costs and weakness in the cigarette business.

HDFC Securities remains positive with an ADD rating and a target price of ₹300.

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