ITC Q2 Results Preview: Profit Seen Falling Nearly 30% YoY as Cigarette Tax Hikes Bite
ITC is set to report a weak second quarter, with brokerages warning that higher cigarette taxes will take a heavy toll on its core business. Analysts expect cigarette volumes to fall about 8% year on year. Cigarette operating profit could drop by as much as 29%. That is a sharp blow for a company that has long relied on cigarettes for the bulk of its earnings.
The stock is in focus ahead of the results. Investors want to know how deep the damage goes and whether ITC’s other businesses can soften the hit.
What the Brokerages Are Saying
Nuvama, one of the brokerages tracking the stock, has laid out a cautious view. It expects ITC’s consolidated revenue to fall 3% year on year. It also projects EBITDA, a key measure of operating profit, to decline 20%.
The main reason is simple. Cigarettes remain ITC’s profit engine. When taxes on cigarettes rise, prices go up. Some smokers cut back, some switch to cheaper options, and some quit. Volumes fall. Because cigarettes carry very high margins, even a modest drop in volumes can pull down profit sharply.
Why Tax Hikes Hurt So Much
India taxes cigarettes heavily, and the government has raised these taxes in recent budgets to discourage smoking and boost revenue. For ITC, each hike means it must either absorb the cost or pass it on to consumers. Absorbing it squeezes margins. Passing it on risks losing volume. Either way, profit takes a hit.
This quarter, the impact appears to be landing hard. An 8% volume decline is significant for a business of ITC’s size. A 29% fall in cigarette operating profit would be one of the steepest drops in recent memory.
The Cushion: FMCG and Paper Businesses
The picture is not all bleak. ITC is no longer just a cigarette company. Its fast-moving consumer goods (FMCG) business, which sells products like biscuits, snacks, soaps and noodles, has been growing steadily. Its paperboards and packaging business is also performing well.
These segments are expected to provide some cushion against the cigarette pressure. Growth in FMCG and paper could offset part of the decline, keeping the overall revenue fall limited to around 3%.
Why This Matters for Investors
ITC’s diversification has been a long-term strategy. The company has spent years building brands in food, personal care and stationery. Those businesses now contribute a meaningful share of revenue, even if they do not match cigarettes on profitability.
For investors, the key question is whether this diversification is enough to protect earnings during a tax shock. The Q2 numbers will offer a first real test.
What to Watch in the Results
Beyond the headline numbers, investors should watch a few specific items. First, the exact decline in cigarette volumes. If it comes in better than the feared 8%, the stock could get some relief. Second, management commentary on pricing actions and whether further tax increases are expected. Third, the margin trend in the FMCG business, which needs to keep improving to justify the company’s long-term bet.
Another point to watch is the dividend and cash flow position. ITC is known for returning cash to shareholders, and a weaker quarter could raise questions about how much room it has to keep doing so.
The Bigger Picture
ITC’s Q2 is likely to be a tough one. Tax hikes are biting, volumes are falling, and profit is under pressure. But the company’s broader portfolio gives it room to absorb the shock. The results will show how well that strategy is working, and whether investors should brace for more pain or look past a single weak quarter.
