Some green for the ITC share price this morning. The stock is up over 1% after the cigarettes-to-FMCG major reported its Q3FY26 result. However, most brokerage houses have taken a cautious approach. Rising cigarette taxes, margin pressures and concerns around illicit trade have prompted major brokerages to stick to ‘Neutral’ or ‘Hold’ ratings, despite steady operational performance.
Let’s take a look at what is shaping the Street’s view on ITC after its Q3 results.
Motilal Oswal on ITC: ‘Neutral’ view
Motilal Oswal has maintained a ‘neutral’ rating on ITC with a target price of Rs 365. This implied a moderate upside potential of 15% from current levels. According to the brokerage report, “ITC continued to deliver a healthy performance in core segments in Q3FY26.”
The brokerage highlighted that consolidated gross cigarette sales rose 8% year-on-year, while cigarette volumes increased by around 6.5%.
The premium cigarette segment continued to perform better than the rest of the portfolio. However, profitability came under pressure as higher leaf tobacco prices weighed on margins.
On the FMCG side, the picture was more be. According to the brokerage report, “Consolidated FMCG segment sales grew 12.6% YoY,”. Operating profit in the FMCG business rose sharply. This is due to better operating leverage and easing trade disruptions after Goods and Services Tax-related issues normalised by late October.
- Agri and paper businesses
Motilal Oswal noted that ITC’s agri business saw moderate growth, with sales rising 6% year-on-year, though margins declined due to cost pressures. The brokerage house believes the full benefit of easing wood prices will become visible only from the fourth quarter of the financial year.
According to the brokerage report, “Paper business is gradually seeing recovery but full benefits will start visible from Q4FY26 onward.”
- Tax hikes change the risk-reward balance
The biggest overhang highlighted by Motilal Oswal is the sharp increase in cigarette taxes, effective February 1, 2026. The brokerage stated, “The recently announced changes in GST and excise duty have led to a steep increase in cigarette taxes.”
This policy change led Motilal Oswal to downgrade ITC earlier, as higher taxes could hurt demand and increase competition from illicit cigarettes. According to the report, “Earnings pressure on cigarettes would take away the near-term catalysts…and comfort on valuation.” The brokerage also warned that illicit cigarette trade could gain ground, impacting the formal industry.
Nuvama on ITC: ‘Hold’ rating
Nuvama has also taken a cautious view, retaining a hold rating on ITC with a target price of Rs 365. According to the brokerage report, “Sharp cigarette tax hikes risk boosting illicit trade and hurting legal volume, revenue.”
Nuvama has cut its earnings estimates for the coming years, citing concerns that repeated price hikes in cigarettes may reverse the recent volume recovery. The brokerage expects two to three rounds of cigarette price hikes in the next few months, which could weigh on consumption.
According to the brokerage report, “FMCG-Others delivered a strong quarter with 11% YoY revenue growth and EBITDA margins expanding 145bp.” The brokerage also highlighted strong growth in digital-first and organic product portfolios, along with early signs of recovery in notebooks.
- Cigarettes remain stable, but risks loom
Nuvama pointed out that ITC’s cigarette business continued to see healthy volume growth during the quarter, driven by premiumisation and innovation. As per the brokerage report, “Cigarettes business sustained strong volume-led momentum, with segment revenue up 7.9% YoY and volumes up 7%.”
However, the brokerage remains cautious about the impact of higher taxes on future demand. It noted that India already has a large illicit cigarette market, and steep tax hikes could push consumers towards unregulated products, hurting legal volumes and profitability.
Conclusion
The brokerage reports suggest that the company’s business is steady. However, higher cigarette taxes, the risk of increased illicit trade, and a lack of strong short-term triggers have made analysts more cautious about the stock.
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor.