ITC shares rise despite Q1 profit decline as stronger cigarette volumes ease tax-hike fears; PhillipCapital sees June quarter as earnings trough

ITC's shares surged up to 5% on August 3 as analysts indicated that the worst effects of a recent tax hike on cigarettes might be over. The company reported a 27% decline in quarterly profit to ₹3,579 crore, yet stronger-than-expected cigarette volumes have alleviated concerns about a shift to illicit products.

The Centre's recent excise duty increase, ranging from ₹2,050 to ₹8,500 per thousand sticks, alongside a 40% consumption tax, was initially viewed as a significant setback for the industry. However, analysts noted that ITC's staggered pricing strategy has helped maintain market share despite short-term margin pressures.³⁴

Brokerages like Jefferies and Nomura highlighted that resilient cigarette volumes post-tax increase indicate that consumer demand has held up better than anticipated. This situation provides ITC with the opportunity to implement further price hikes, potentially enhancing profitability in the upcoming quarters.²⁵⁶⁷

PhillipCapital forecasts that the June quarter likely represents the earnings trough for ITC's cigarette segment, while HSBC anticipates a gradual recovery as the effects of price hikes materialize. Dolat Capital also noted that FY27 will be a transition year for ITC as it balances price increases with market share protection, expecting a restoration of profitability in its cigarette business by the fiscal year's end.