ITC Q1FY26 Results: Cigarette Volumes Climb 6.5%, Agri Surges 39%. PL Capital Explains Why It’s Still a ‘Buy’
- 4th August 2025
- 06:00:00 PM
- 4 min read
Mumbai | August 4 – ITC Ltd’s Q1FY26 earnings reveal a story of contrast — strong double-digit revenue growth, rising volumes in cigarettes, and agri outperformance on one side, offset by margin pressure in FMCG and packaging. Total revenues rose 20.6% YoY to ₹19,749.9 crore, while profit after tax grew modestly by 1.9% YoY to ₹4,912 crore, largely due to inflationary headwinds and a high-cost base across verticals.
According to PL Capital, the short-term margin drag is transient, and the company remains fundamentally strong across its core segments. The brokerage has maintained a ‘BUY’ rating on ITC, revising the target price to ₹530, reflecting over 27% upside from the current levels of ₹416. “ITC’s diversified playbook, digital-first FMCG strategy, and improving raw material dynamics should drive margin recovery from H2FY26. We see strong visibility on earnings with a 9% CAGR over FY25–27,” said Amnish Aggarwal, Head of Research, PL Capital.
Segment Snapshot: What Drove Q1FY26 Performance?
- Cigarettes (32.6% of sales | 83.8% of EBIT):
Volumes grew 6.5% YoY, with revenue touching ₹8,520 crore and EBIT margin at 60.4%. Growth was aided by stable taxation, market share gains, and premium launches like Classic Clove and Gold Flake Indie Clove. Leaf tobacco prices, a major input cost, have softened by 10–15% this season — setting the stage for margin revival in 2H. - FMCG (22.1% of sales):
The FMCG segment grew 5.2% YoY to ₹5,780 crore (excluding notebooks: ~8%), led by staples, dairy, homecare, and agarbattis. However, EBIT fell 16% YoY to ₹397.5 crore as elevated input costs (edible oil, wheat, cocoa) weighed on profitability. That said, FMCG EBIT margins improved sequentially by 50bps to 9.4%, showing signs of resilience. “Our future-ready FMCG portfolio including Yogabar, Meatigo, and 24 Mantra has crossed ₹1,000 crore ARR,” management noted in the post-earnings call. “We remain focused on scaling premium and digital-first brands while selectively pursuing inorganic growth.” - Agri (37.1% of sales):
Revenue shot up 38.9% YoY to ₹9,690 crore, driven by commodity trading and robust leaf tobacco exports. EBIT rose 22% YoY, though margins contracted to 4.5% due to the changing export mix. The business is also doubling down on value-added verticals like aqua, spices, and coffee, which have grown 2.2x over four years. - Paper and Packaging (8.1% of sales):
The laggard segment saw EBIT fall 38% YoY, with margins plunging to 7.7%, as cheap Chinese imports, high domestic wood prices, and sluggish demand continued to hurt performance. However, the Century Paper acquisition is expected to add synergy benefits in H2, and any anti-dumping duty could turn the tide for this vertical.
ITC’s management remains optimistic about a gradual recovery in margins and is doubling down on its FoodTech and FMCG bets. The company scaled its cloud kitchen vertical to 60 kitchens across five cities (South & West India), clocking ₹1bn+ GMV in FY25. It also plans to integrate new-age channels (e-com, D2C) more aggressively.
“We are leveraging synergies across ITC Next, scaling modern trade, and expanding premium categories. The operating environment remains volatile, but structural levers are intact,” the management noted.
Should You Buy, Sell or Hold ITC Stock?
With ITC trading at 22.4x FY27E earnings and offering a 3.7% dividend yield, PL Capital believes the stock presents a compelling opportunity for long-term investors. The current pressure on margins is expected to ease by Q3FY26, aided by cooling input costs and better operating leverage across segments. The brokerage maintains a ‘BUY’ rating with a target price of ₹530, implying over 27% upside from the current market price of ₹416. For existing investors, it’s a hold with conviction; for new entrants, the recent underperformance could be a chance to accumulate.
PL Capital
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
