A day after ITC Ltd released its fiscal fourth quarter earnings report, analysts said that the company’s cigarette business remained the cornerstone of stability in its Q4FY25 with steady volume growth of around 5 per cent on-year. This is despite pressures from rising input costs and intensifying market competition.
The segment recorded revenue of Rs 9,228.66 crore during the quarter in review, posting a growth of 6 per cent on-year. This was driven by the premium portfolio and targeted market strategies, while EBIT margins experienced some compression due to inflation in leaf tobacco prices. EBIT growth in the cigarettes segment was hit by elevated input costs, which was partially cushioned by cost control measures, strategic pricing, and a focus on premiumization.
JM Financial said, “Steady volumes indicate that the category remains relatively resilient vs other consumption segments. However, RM inflation and lack of price hikes resulted in EBIT growth being lower at 4 per cent. While tobacco prices have moderated, the benefit of the same is likely to be seen in H2 as high cost inventory gets consumed in H1.”
Portfolio expansion strengthens market position
The conglomerate has introduced several innovative variants recently under the Classic, Gold Flake, American Club, Flake brands amongst others and the business has strengthened its presence in focus markets with the launch of these differentiated offerings across segments. Elara Securities said, “Targeted portfolio strategies and micro-market interventions in competitive regions supported volume-led growth.”
ITC has enhanced the innovation funnel with expanded options for new users. Emkay Global said, “We see a clear quest for market share gains with youth. Slims as a segment has seen faster adoption, as per our trade checks; ITC has been enhancing this portfolio. Clove-based offerings from ITC continue to see a surge, implying a focus on developing the segment and gaining advantage.”
Apart from Q3 launches of Classic Clove, AC Just Clove, and GF Indie Clove, the company in Q4 has launched new offerings like Gold Flake Indie Clove, American Club variants, and Capstan Clove. Per analysts, these targeted innovations are not only helping ITC maintain its market share but also reinforcing its position in premium segments.
Inventory lag delays cost benefits
While spot leaf tobacco prices have started easing, Emkay Global and JM Financial maintained that the benefit will flow in from FY27, as ITC carries inventory for 18 months. Nonetheless, brokerages believe that the fundamentals of the cigarette business remain strong, buoyed by a supportive policy environment, including the absence of tax hikes in the recent Union Budget.
Growth outlook and risks
Emkay Global said, “Cigarettes business outlook is likely to enhance, with expectation of an ‘accommodative’ stance by the government which would help clock a mid-single digit volume growth; earnings would see improvement from FY27, with recovery in margin from lower leaf-tobacco prices (with a lag of four quarters).” The brokerage firm pegged a 10 per cent EBIT CAGR for the cigarette business over FY25-28.
To conclude, analysts maintained that while margin pressures and rising competition have moderated short-term profitability, ITC’s cigarette business continued to exhibit solid volume growth, underpinned by strategic innovation, regulatory support, and portfolio strength.