ITC is set to announce it Q1FY27 results on July 31. All eyes are on the Cigarette and FMCG major as the company faced a double whammy of cigarette price hikes and West Asia conflict in Q1. This is the first quarter, which will reflects the full impact of the new taxation structure, which forced  ITC to raise cigarette prices sharply.

Brokerage firms like Kotak Institutional Equities and Axis Securities Equity Research believe that ITC is going to report a weak set of earnings for the June quarter.

“ITC is expected to deliver a weak overall performance, with revenue projected to

decline by 10.2% year-on-year (YoY), primarily due to the substantial cumulative tax hikes of approximately 45% on cigarettes,” Axis Securities Equity Research noted.

According to Axis, “The sharp increase in taxation is likely to shift the company’s strategy from full-price pass-through to calibrated price increases in order to safeguard the legal franchise and curb downtrading to illicit products. While the company has implemented staggered price hikes, these remain insufficient to fully offset the impact on margins. “ 

Here are 5 key factors to watch out for as the street awaits the Q1 results

1. ITC Q1FY27 preview: Cigarette business in focus

ITC’s cigarette volumes is expected to decline 9% year-on-year (YoY) in Q1FY27. According to Kotak, net sales is also expected to decline 20% YoY and revenue from the cigarette business is expected to drop 22%, while EBIT may fall 32%.

“Cigarette EBIT is estimated to decline 32% yoy, largely due to inadequate price hikes to fully protect profitability (took blended ~25% price hike in Q1 versus approximately 35-40% required to fully offset the tax increase, volume loss and downtrading),” Kotak noted. 

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Overall, the volume impact on ITC’s cigarette portfolio has been relatively contained, while the EBIT impact has been significant due to partial tax absorption and adverse mix shifts,” Kotak added.

2. ITC Q1FY27 preview: FMCG business likely to remain resilient 

ITC’s FMCG business to continue its growth momentum during the June quarter.

Kotak estimates the FMCG segment’s revenue could rise 12% YoY. The segment’s EBIT margin is likely to remain around 8% as the company manages higher edible oil and packaging costs through calibrated price hikes, cost control measures and the use of low-cost inventory.

3. ITC Q1FY27 preview: Agri business may deliver weak performance

ITC’s agri business is expected to remain weak during the quarter.

Kotak estimates revenue from the segment could decline around 50% YoY due to disruptions in West Asia that resulted in vessel shortages. However, the brokerage expects EBIT margin to remain broadly stable at around 5%.

4. ITC Q1FY27 preview: Paperboard business may improve

ITC’s paperboards business is likely to post 11% revenue growth, driven mainly by better realisations.

Kotak also said the recent anti-dumping duty on virgin multi-layer paperboard imports could support the business in the coming quarters.

5. ITC Q1 preview: Overall revenue may fall 17.5% 

ITC’s standalone revenue is expected to decline 17.5% YoY in the June quarter, according to Kotak. EBITDA is also projected to fall 27.4%, while standalone net profit may decline 24%.

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Conclusion

Most analysts and industry observers noted that demand outlook, competitive intensity, raw material trends, agri business outlook and cgarette businesses are among the key monitorables for ITC.

Kotak believes earnings could improve in the second quarter, as recent calibrated price hikes and the company’s focus on higher-margin cigarette products help reduce the impact of the tax changes. Axis Securities expects an overall weak quarter for the FMCG major.