ITC’s profit fell by about a fifth from a year ago as February’s large cigarette tax increase continued to hurt. But cigarette profit improved from the June quarter, non-cigarette FMCG grew 19%, and results beat estimates. The worst of the tax impact may now have passed.
ITC reported consolidated net profit attributable to shareholders of ₹4,168.40 crore for the September quarter, down 18.7% from a year earlier. Revenue rose about 5% to around ₹20,450 crore. Both figures were slightly above Bloomberg consensus estimates of about ₹4,136 crore in profit and ₹20,111 crore in revenue.
The shares rose 0.3% to close at ₹266.40.
What changed: the cigarette tax
ITC’s problems this year have one cause: a large change in cigarette taxation. From 1 February 2026, GST on cigarettes moved from 28% of transaction value to 40% of the retail sale price. That substantially increased the tax per cigarette and forced ITC to raise prices sharply, by an estimated 25% on average, to protect its margins.
The result has been fewer cigarettes sold. Brokerages expected volumes to fall around 8–9% this quarter. Cigarette segment profit fell about 26–27% from a year earlier, to around ₹3,800–4,000 crore depending on the measure.
The recovery from the June quarter
The year-on-year comparison is poor, but the quarter-on-quarter comparison is better. Cigarette pre-tax profit rose 7.3% from the June quarter, from ₹3,769 crore to ₹4,044 crore.
That is the most important figure in the results. It suggests the effect of the tax increase peaked in the June quarter and is now easing. ITC’s price increases are holding, consumers are getting used to the new prices, and some volume is returning.
Some of the lost volume may have gone to illegal cigarettes, which avoid the tax and become more competitive when legal cigarettes become much more expensive. That is a long-term risk for ITC and for government revenue. The sequential improvement suggests the loss to illegal products may be stabilising.
FMCG is growing
ITC’s non-cigarette FMCG business, which includes Aashirvaad atta, Sunfeast biscuits, Bingo snacks, Yippee noodles and Classmate notebooks, grew revenue about 19%. Its profit before interest and tax rose 27.8% to ₹558 crore, and the operating margin improved by 75 basis points.
For years, investors have wanted ITC to reduce its dependence on cigarettes. The FMCG business is now growing quickly and becoming more profitable. It is still much smaller than cigarettes in profit, ₹558 crore compared with about ₹4,000 crore, but the gap is narrowing.
The paper and agri businesses also helped. Agri-business benefited from strong commodity exports.
What to watch
The next few quarters depend on whether cigarette profit continues to improve from Q1. If it does, ITC will start reporting year-on-year growth again from around the March quarter, when the tax increase will be in the year-earlier base.
The main risk is further tax changes. Cigarette taxes are a significant source of government revenue, and with the fiscal deficit at 42% of the annual target by September, the government may look for more. Any further increase would set back ITC’s recovery.
For now, ITC’s results suggest the company has absorbed the worst of the February tax increase.
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