ITC (ITC IN) – Q2FY26 Result Update – Expect margin recovery to set in 2H26 – BUY
Published on 30 Oct 2025
ITC reported a strong 6% volume growth in Cigarettes, while FMCG and paperboard reported higher margins QoQ. FMCG business sales were impacted due to pressure in stationary business and impact of GST transition. 8% sales growth ex notebooks and 50bps margin expansion despite trade support for GST transition is positive. Paper Business witnessed challenging quarter with sustained influx of low-priced supplies although imposition of MIP provided relief during the quarter.
However, we expect margin recovery to set in from 3QFY26 led by 1) Superior product mix in Cigarettes and usage of lower cost leaf tobacco 2) likely decline in wood prices and benefits of MIP imposition in paper board 3) expected recovery in demand and margins in FMCG business led by GST cuts and 4) stationary business losses will decline on imposition of ADD and GST removal. FMCG business has shown resilience with Digital First & Organic portfolio clocking Rs.11bn ARR while Food tech business has achieved Rs900mn in 1H26 (Rs1.05bn in FY25).
We estimate 9.9% EPS CAGR over FY26-28 (Ex century paper integration). We believe ITC offers a favorable risk reward at 21.5xSeptFY27 EPS and a dividend yield of 3.7%. We assign SOTP based target price of Rs530. Retain BUY.
