Cigarette volumes declined by around 7.5 per cent YoY, but segment margins recovered sequentially by over 500 basis points QoQ to 67.9 per cent, as calibrated repricing made a positive difference. Segment profit was 27 per cent lower YoY.
However, FMCG growth hit a multi-year high, with margin expansion despite raw material inflation. There was momentum in agri and paperboards, and non-cigarette portfolio revenue grew 18 per cent, with segment profit growth of 24 per cent. EBIT margin at 9.4 per cent was up 46 basis points YoY.
Investors will be hoping that repricing in cigarettes triggers a gradual recovery in cigarette volumes against smuggled competition. Non-cigarette businesses delivered strong growth.
FMCG-Others revenue grew 16 per cent, while paper revenue and segment profit rose 36 per cent and 48 per cent, respectively. Cigarettes saw net revenue decline 21 per cent YoY.
Group companies did well, including ITC Infotech, Surya Nepal, Sproutlife Foods and ITC Hotels. Standalone net revenue for Q2FY27 grew 2.1 per cent YoY to ₹18,400 crore. Gross revenue was up 47 per cent YoY due to higher excise duties on cigarettes (from February 2026).
Cigarette volumes may have been down around 7-10 per cent YoY. Gross margin overall contracted 450 basis points YoY to 50 per cent, reflecting input inflation. Operating profit declined 17.5 per cent YoY to ₹5,160 crore, with margin down 665 basis points YoY to 28 per cent. Adjusted net profit fell 18.2 per cent YoY to ₹4,160 crore. Other income declined 10.1 per cent YoY. The non-cigarette segment’s profit grew 24 per cent YoY.
In cigarettes, net revenue declined 21 per cent YoY to ₹5,600 crore, while profit declined 27 per cent YoY to ₹3,800 crore. The segment margin was 67.9 per cent versus 71.2 per cent in Q2FY26, but up from 62.5 per cent in Q1FY27.
Segment profit was up 14 per cent QoQ, as repricing had a positive impact. Industry volumes remain under pressure with a rise in smuggled cigarettes. ITC introduced new variants and its own international trademarks to counter smuggled brands. Cigarettes showed QoQ improvements, which indicate signs of stable adjustment to the tax regime. The growth in non-cigarette businesses marks several consecutive quarters of double-digit revenue growth for non-cigarette divisions. ITC’s digital-first and organic portfolio, including Yoga Bar, Prasuma, Mother Sparsh and 24 Mantra, grew over 70 per cent YoY, with annual revenues exceeding ₹1,800 crore.
Agri revenue and margin increased 12 per cent and 11 per cent YoY, respectively, while paper saw 36 per cent revenue growth YoY, with 48 per cent YoY growth in profit. Fresh food gross merchandise value (GMV) grew 53 per cent YoY, with annual revenues above ₹320 crore. The FMCG segment margin expanded 75 basis points YoY with premiumisation, a better product mix and cost efficiencies. Paper profitability improved significantly, with underlying profit up 50 per cent YoY (excluding the Century Pulp and Paper acquisition) and margin up 320 basis points. However, cigarette volumes and profitability were lower YoY, with net revenue and profit down 21 per cent and 27 per cent YoY, respectively. Sustained volume and margin recovery are key monitorables. Apart from taxes, crude-linked input costs, freight rates and geopolitical disruptions could all compress margins.
An uneven and erratic monsoon and El Niño threaten agricultural output, causing food inflation and hurting rural consumption, while elevated wood prices are a concern for the paper division. Management says it is watchful of the macro environment due to high crude and crude-linked input costs, higher freight rates and geopolitical disruptions. In India, demand is resilient, but poor and uneven monsoons, lower reservoir levels and El Niño conditions pose risks to rural consumer sentiment. Management is focused on calibrated pricing, portfolio mix, cost management and supply-chain resilience. Until cigarettes stabilise under the new tax regime, non-cigarette businesses will have to be the growth drivers, and all such segments grew at robust rates.
Pressure on cigarette volumes may persist through H2FY27 as inventory dips to lower levels and consumer demand gradually rebounds from pricing shocks. But FMCG growth, with strong positions in atta, biscuits, noodles, snacks, etc., will offset this to an extent. The paper division has been boosted by the acquisition of Century Pulp & Paper in Q2FY27. Agri revenues may be boosted by exports of leaf tobacco, spices, coffee and paddy. Most analysts are holding earnings and valuations at earlier projections (post-Q1FY27) or factoring in small increases.
