ITC shares came under pressure after the company’s Q2 FY27 results showed a sharp decline in cigarette profitability following higher taxation and weaker volumes. Morgan Stanley reduced its target price to ₹312 from ₹340, while Goldman Sachs maintained its Neutral rating with a target of ₹290. However, brokerages remain divided, with some highlighting the company’s strong FMCG growth, improving paperboards performance and attractive valuations after the recent correction.
ITC Share Price: Why Did the Stock Come Under Pressure?
ITC reported a challenging September quarter, with higher cigarette taxes weighing on earnings despite strong performance across its non-cigarette businesses.
The company’s standalone revenue increased approximately 3% year-on-year, while EBITDA declined 17%. Cigarette revenue fell 21%, and cigarette segment earnings before interest and tax (EBIT) dropped 27%, reflecting the impact of taxation and lower volumes.
The results highlight an important issue for ITC investors: cigarettes remain a significant earnings contributor, and changes in taxation can have an immediate impact on profitability.
Although the company’s FMCG, agriculture and paperboards businesses continue to expand, the cigarette segment’s weakness has affected overall earnings expectations.
ITC Q2 FY27 Results: Key Financial Highlights
The September quarter reflected contrasting performance across ITC’s business segments.
Cigarette Business Faces Tax Pressure
The cigarette business continued to experience pressure following the increase in taxes.
Higher taxation makes legal cigarettes more expensive and can encourage some consumers to shift towards cheaper alternatives, including illicit products.
ITC has adopted a calibrated pricing strategy instead of immediately passing on the entire tax increase to consumers. This approach aims to limit volume losses, although it also means profitability may take longer to recover.
FMCG Business Provides Growth Support
ITC’s non-cigarette FMCG business recorded strong growth, supported by demand across packaged foods, personal care and other consumer categories.
The FMCG business recorded 16% growth, its fastest pace in 14 quarters, according to brokerage commentary.
Digital-first and organic brands also continued to expand, growing more than 70% year-on-year and crossing an annual recurring revenue run rate of ₹1,800 crore. The Economic Times+1
Paperboards and agriculture also provided support, helping offset some weakness in cigarettes.
Morgan Stanley on ITC: Target Price Cut to ₹312
Morgan Stanley reduced its ITC target price to ₹312 from ₹340 and retained its Equal-weight rating.
The brokerage remains cautious about the company’s cigarette earnings recovery, particularly because higher taxes have affected volumes and profitability.
Its revised target reflects the challenges of restoring cigarette earnings while balancing price increases against consumer affordability.
Morgan Stanley’s Equal-weight rating indicates a relatively balanced outlook rather than a strong conviction that the stock will significantly outperform or underperform the broader market.
Goldman Sachs on ITC: Neutral Rating, ₹290 Target
Goldman Sachs maintained its Neutral rating on ITC with a target price of ₹290.
The brokerage expects cigarette profitability to remain under pressure despite staggered price increases. It believes the company could complete the pass-through of higher cigarette taxes by the end of FY27, but double-digit cigarette EBIT declines may continue during the second half.
Goldman Sachs also recognises the contribution of ITC’s FMCG and paperboards businesses, which provide diversification and support future earnings growth.
Full Brokerage Views on ITC Shares After Q2 Results
The brokerage outlook remains mixed, with differences in expectations regarding cigarette recovery, valuations and growth across non-cigarette businesses.
| Brokerage | Rating | Target Price |
|---|---|---|
| Morgan Stanley | Equal-weight | ₹312 |
| Goldman Sachs | Neutral | ₹290 |
| JPMorgan | Neutral | ₹310 |
| Jefferies | Buy | ₹350 |
| UBS | Buy | ₹345 |
| CLSA | Outperform | ₹390 |
| Macquarie | Neutral | ₹300 |
| Emkay Global | Add | ₹300 |
| Motilal Oswal | Neutral | ₹285 |
| Nuvama | Buy | Target varies by report |
These recommendations reflect brokerage estimates and valuation assumptions, not guaranteed future share prices.
Why Are Some Brokerages Still Positive on ITC?
Despite cigarette-related earnings pressure, several analysts see potential support from ITC’s diversified business portfolio.
1. Strong FMCG Growth
ITC’s packaged foods, personal care and other consumer products businesses continue to expand.
Growth in these segments can gradually reduce the company’s dependence on cigarettes for incremental earnings.
2. Paperboards Recovery
Improving demand and a better product mix in paperboards, paper and packaging could support revenue and margins.
3. Potential Cigarette Earnings Recovery
Further price increases and portfolio adjustments could help restore cigarette profitability over time.
However, the pace of recovery depends on consumer response, taxation and competition from illicit cigarettes.
4. Valuation After the Correction
Some brokerages believe ITC’s recent share price correction has made valuations more attractive.
The investment case increasingly depends on whether earnings recover sufficiently to justify the company’s valuation.
What Should Investors Watch in ITC Shares?
The coming quarters will be important for understanding whether ITC can stabilise cigarette earnings and sustain growth across its consumer businesses.
Investors should monitor:
- Cigarette volume growth and EBIT per stick.
- Further cigarette price increases and consumer response.
- FMCG revenue growth and operating margins.
- Paperboards demand and profitability.
- Raw material costs and overall earnings growth.
These indicators can help investors distinguish between temporary earnings pressure and a more prolonged slowdown.
Opportunities and Risks for ITC Share Price
ITC’s diversified business portfolio provides opportunities for earnings growth beyond cigarettes. FMCG expansion, premiumisation, digital-first brands and improving paperboards demand could support long-term performance.
However, cigarette taxation remains the most significant near-term risk. Higher prices could affect legal cigarette volumes, while delayed tax pass-through may continue to pressure margins.
Other risks include input cost inflation, uneven consumer demand and uncertainty surrounding the timing of earnings recovery.
Conclusion
ITC shares remain under scrutiny following the Q2 FY27 results, with Morgan Stanley reducing its target price to ₹312 and Goldman Sachs maintaining a Neutral rating at ₹290.
The company’s cigarette business continues to face taxation and volume pressures, while FMCG and paperboards provide important growth support.
The brokerage disagreement reflects different expectations regarding cigarette recovery, earnings visibility and valuation. For investors, the next key indicators will be cigarette profitability, further pricing actions and sustained growth across ITC’s non-cigarette businesses.
Frequently Asked Questions
1. Why did ITC shares fall after Q2 FY27 results?
ITC shares faced pressure after its September quarter results showed weaker cigarette profitability. Higher taxation and declining cigarette volumes affected revenue and earnings, while the company’s FMCG and paperboards businesses provided support. The results also prompted several brokerages to reassess their earnings estimates and target prices.
2. What is Morgan Stanley’s target price for ITC shares?
Morgan Stanley reduced its ITC target price to ₹312 from ₹340 and retained its Equal-weight rating. The brokerage remains cautious about cigarette earnings recovery following higher taxation and volume pressure. Its revised target reflects a more measured outlook on the company’s near-term profitability.
3. What is Goldman Sachs’ target price for ITC?
Goldman Sachs maintained its Neutral rating on ITC with a target price of ₹290. The brokerage expects cigarette earnings to remain under pressure despite gradual price increases. It sees support from FMCG and paperboards but believes cigarette profitability could remain weak during the second half of FY27.
4. What was ITC’s cigarette revenue decline in Q2 FY27?
ITC’s cigarette revenue declined approximately 21% year-on-year during Q2 FY27. Segment EBIT fell around 27%, reflecting higher taxation and lower volumes. The decline highlights the importance of cigarette profitability to ITC’s overall earnings and explains why brokerages remain cautious about the recovery timeline.
5. Why is ITC’s cigarette business under pressure?
Higher cigarette taxes have increased the cost of legal cigarettes, affecting consumer affordability and demand. ITC is implementing calibrated price increases to reduce the risk of consumers shifting towards illicit products. However, the strategy can delay the recovery of profitability until sufficient price increases are implemented.
6. What is ITC’s FMCG business growth in Q2 FY27?
ITC’s non-cigarette FMCG business recorded 16% growth in Q2 FY27, its fastest pace in 14 quarters. Growth across consumer products, packaged foods and digital-first brands is helping diversify the company’s earnings. This segment remains an important support for ITC amid cigarette-related challenges.
7. Which brokerage has the highest ITC share price target?
Among the brokerage targets reported following Q2 FY27 results, CLSA has a target price of ₹390 and an Outperform rating. Jefferies has a ₹350 target with a Buy rating, while UBS has a ₹345 target. Brokerage targets are estimates and may change with earnings and market conditions.
8. Is ITC a Buy, Sell or Hold after Q2 results?
Brokerages have differing views on ITC following its September quarter results. Some remain positive because of valuations and FMCG growth, while others are cautious about cigarette profitability. Investors should evaluate earnings, valuation, dividend expectations and risk tolerance rather than relying on one brokerage recommendation.
9. Can ITC cigarette earnings recover in FY27?
Cigarette earnings could improve if further price increases restore profitability and legal cigarette volumes stabilise. However, recovery depends on taxation, consumer demand and competition from illicit cigarettes. Brokerages expect different recovery timelines, making quarterly cigarette volume and EBIT performance important indicators.
10. What should investors monitor before evaluating ITC shares?
Investors should track cigarette volume growth, EBIT per stick, price increases, FMCG margins, paperboards demand and quarterly earnings. Brokerage target prices can provide valuation context, but they are not guarantees. Actual performance will depend on ITC’s ability to manage taxation pressure and sustain growth across its diversified businesses.
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Jaspreet Singh Arora is the Chief Investment Officer at Equentis, where he heads a seasoned team of equity analysts and turns two decades of market experience into portfolios that consistently beat the benchmark. A go-to voice on cement, building-materials, real-estate, and construction stocks, Jaspreet previously ran research desks at leading brokerages, honing an eye for the metrics that truly move share prices. His plain-spoken analysis helps investors cut through noise and act with conviction. When he’s not deep-diving into earnings calls, you’ll find him unwinding over sports, weekend cricket or a good history podcast.
