ITC Q1 Results: Why Shares Rose Despite Profit Falling

ITC’s Q1 FY27 profitability weakened, with consolidated EBITDA down 24% and profit before exceptional items falling 23.2%.

Despite this, the shares rose after the result. ITC said its staggered pricing and product interventions were protecting the cigarette franchise, while FMCG-Others, paperboards and group companies reported strong growth. This suggested that the tax impact was being managed, even though cigarette profitability remained under pressure.

ITC Q1 FY27 Consolidated Result Highlights

• Gross revenue increased 27.8% year-on-year to ₹29,410 crore.
• Net revenue declined 11% to ₹18,955 crore.
• EBITDA declined 24% to ₹5,181 crore.
• Profit before tax, excluding exceptional items, declined 23.5% to ₹5,455 crore.
• Profit after tax, excluding exceptional items, declined 23.2% to ₹4,103 crore.
• Reported profit after tax declined 15.6% to ₹4,509 crore.
• ITC recorded an exceptional gain of ₹406 crore during the quarter.

ITC’s reported profit decline of 15.6% looks less severe than the fall in its underlying earnings because the company recorded an exceptional gain.

Sproutlife Foods became an ITC subsidiary from April 1, 2026. Following this change, ITC remeasured its existing investment in Sproutlife at fair value and recorded the resulting gain as an exceptional item.

Therefore, the 23.2% decline in profit before exceptional items gives a clearer picture of ITC’s recurring performance during the quarter.

Why ITC Shares Rose Despite Weak Earnings

The company’s earnings were clearly under pressure. However, investors may have focused on how ITC was managing the sudden tax increase in its cigarette business rather than only on the fall in profit.

ITC described its response as strategic and calibrated. Instead of relying on a single large pricing action, the company used staggered and agile pricing to protect its consumer franchise and reduce the risk of customers moving towards illicit cigarettes.

The company also said its strategy, execution and outcomes were tracking well in line with internal plans.

This is important because the cigarette tax increase created two risks for ITC. Raising prices too slowly could hurt profit margins, while raising them too quickly could push consumers towards cheaper or illicit alternatives.

ITC appears to have prioritised protecting its market position and consumer base, even though this approach created a large short-term hit to cigarette profit. The positive share-price reaction suggests investors may have viewed this as a manageable transition rather than a permanent weakening of the cigarette franchise.

What Happened in ITC’s Cigarette Business?

ITC’s detailed segment disclosures are provided on a standalone basis. The cigarette business reported:

• Gross revenue growth of 81%.
• Net revenue decline of 25%.
• Segment profit decline of 35%.

The sharp difference between gross and net revenue shows why the gross revenue number should not be viewed in isolation. Despite the 81% increase in gross revenue, the business reported a 25% decline in net revenue and a 35% fall in segment profit.

This was a quarter affected by an unprecedented increase in cigarette taxation and a staggered pricing response. The more relevant indicators for investors are therefore net revenue and segment profit, both of which declined sharply.

ITC Chose to Protect Its Cigarette Franchise

ITC implemented more than 30 interventions within a short period to strengthen its cigarette portfolio.

These included new products, variants, different cigarette lengths and changes across brands and price points. The company used the width of its portfolio and the strength of brands such as Gold Flake, Classic, Players, Wave, Scissors and Bristol to respond to changing consumer behaviour.

The logic behind this strategy is straightforward.

When cigarette prices change sharply, consumers may not stop consuming immediately. They could instead move towards a different price point, pack size, cigarette length or brand.

By offering products across multiple price points, ITC can try to retain these consumers within its own portfolio. This protects the long-term value of the franchise, even if the company earns lower profit during the transition period.

However, the 35% fall in cigarette segment profit shows that this protection came at a significant short-term cost.

Why Cigarettes Are Still ITC’s Cash Cow

A cash cow is a mature business that generates a large amount of profit, which can then support dividends and investment in other businesses.

Cigarettes remain ITC’s cash cow because they continue to generate most of the company’s segment profit.

PBIT means profit before interest and tax. It shows the operating profit generated by each business before financing costs and taxes.

The cigarette business generated ₹3,341 crore out of total segment PBIT of ₹4,392 crore.

This means cigarettes contributed approximately 76% of ITC’s total segment profit during the quarter, even after cigarette profit fell 35%.

All the remaining segments together generated around ₹1,051 crore. Cigarette profit was therefore more than three times the combined profit of ITC’s other operating businesses.

ITC does not disclose separate cash flows for each segment. However, this overwhelming profit contribution explains why cigarettes are still described as the company’s cash cow.

Group Companies Supported Consolidated Performance

ITC highlighted strong performance from group entities including ITC Infotech, Surya Nepal, Sproutlife Foods and ITC Hotels.

At the consolidated level, FMCG segment revenue increased 15%, while segment results grew 22%.

This helped consolidated performance remain stronger than standalone performance. Standalone PAT declined 27.1%, compared with a 23.2% decline in consolidated PAT before exceptional items.

The group businesses therefore provided some support, but they could not fully offset the large decline in cigarette earnings.

What Should Investors Watch Next?

• Cigarette Pricing: ITC’s pricing actions are still being implemented. Investors should watch whether these actions improve cigarette net revenue and segment profit in the coming quarters.
• Consumer Franchise: The company’s priority is to protect its consumer base and reduce movement towards illicit cigarettes. The effectiveness of its new products, variants and price points will be important.
• Cigarette Profit Recovery: Cigarettes still contribute around three-fourths of total segment profit. Therefore, ITC’s overall earnings recovery will depend heavily on the recovery of cigarette profitability.
• FMCG Margin Expansion: FMCG-Others is growing faster and improving margins. Continued progress could gradually reduce ITC’s dependence on cigarettes, although the profit gap remains very large.
• Agri and Input-Cost Risks: West Asia-related trade disruptions, crude-linked input costs, weak monsoons and imported inflation remain important risks for the agri and FMCG businesses.

Author’s Take

ITC’s Q1 FY27 result was weak in absolute terms. Consolidated EBITDA declined 24%, while profit before exceptional items fell 23.2%.

The cigarette business remained the main source of pressure, with net revenue declining 25% and segment profit falling 35%.

However, the company’s presentation also showed that ITC was actively protecting its cigarette franchise through staggered pricing, portfolio changes and more than 30 interventions. Management said the strategy and outcomes were tracking in line with internal plans.

This may explain why investors responded positively despite the profit decline.

The key point is that ITC has not yet solved the pressure on cigarette profitability. It has only shown that it has a strategy to manage the tax shock while protecting its market position.

Since cigarettes still contribute around 76% of segment profit, the next phase of ITC’s earnings recovery will depend on whether this strategy can eventually restore cigarette profit without weakening the consumer franchise.