ITC reported a robust 6% volume growth in its Cigarettes segment, while the FMCG and paperboard businesses delivered higher quarter-on-quarter margins. FMCG sales were somewhat affected by pressure in the stationery segment and GST transition challenges. Excluding notebook sales, the business achieved 8% sales growth and a 50-basis-point margin expansion, despite trade support for GST-related adjustments. The Paper Business faced a difficult quarter due to continued inflow of low-priced supplies, although the Minimum Import Price (MIP) implementation provided some relief.
Looking ahead, margin recovery is expected from Q3FY26, supported by: 1) better product mix and lower-cost leaf tobacco in Cigarettes, 2) potential decline in wood prices and MIP benefits in paperboard, 3) revival in FMCG demand and margins following GST cuts, and 4) reduction in stationery losses due to anti-dumping duty and GST removal. FMCG has shown resilience, with the Digital First and Organic portfolio reaching Rs 11bn ARR, and the Foodtech business achieving Rs 900mn in 1H26 (Rs 1.05bn in FY25).
We estimate a 9.9% EPS CAGR over FY26–28 (excluding Century Paper integration). At 21.5x Sept FY27 EPS and 3.7% dividend yield, ITC offers an attractive risk-reward. SOTP-based target: Rs 530. Retain BUY.
