ITC reported a sharp decline in profitability during the second quarter of FY27 as its cigarette business continued to face pressure from higher taxation, substantial price increases and weaker consumer demand. The company’s standalone profit declined 18.7% year-on-year, according to the reported results, while the consolidated profit fell approximately 20% to ₹4,137 crore for the quarter ended September 30, 2026.
The decline came despite growth in ITC’s non-cigarette fast-moving consumer goods (FMCG) business. The contrasting performance highlights the challenge facing the diversified consumer goods company: its packaged foods, personal care and other consumer businesses are expanding, but cigarette operations remain a major contributor to earnings. Higher cigarette prices have not yet fully offset the impact of increased taxes and declining volumes.
Key Highlights of ITC Q2 FY27 Results
- Standalone profit declined 18.7% year-on-year.
- Consolidated profit fell approximately 20% to ₹4,137 crore.
- Consolidated profit was ₹5,176 crore in the corresponding quarter last year.
- Profit from ITC’s cigarette business declined 27%.
- Higher cigarette taxation and price increases affected demand and sales volumes.
- The non-cigarette FMCG business continued to grow, providing some support to overall performance.
- Raw-material inflation added pressure to the company’s earnings.
Cigarette Business Remains the Biggest Drag
ITC’s cigarette business was the primary reason behind the decline in quarterly profitability. The segment experienced pressure following changes to India’s cigarette taxation structure, which increased the cost burden on manufacturers.
The company responded by implementing significant price increases across its cigarette portfolio. However, higher prices affected affordability and consumer demand, creating pressure on sales volumes.
According to Reuters, profit from ITC’s cigarette business declined 27% during the September quarter. This was a major contributor to the company’s overall earnings contraction.
The challenge for ITC is balancing higher prices with the risk of losing customers. If manufacturers pass the entire increase in taxation to consumers, some buyers may reduce consumption, switch to cheaper alternatives or move towards illicit products.
ITC has previously said that it is taking a calibrated approach to pricing and product portfolio changes to protect its consumer franchise and reduce the risk of customers shifting to illicit cigarette products.
Higher Taxes and Price Increases Affect Demand
The cigarette industry has faced a significant change in its tax environment during FY27. Higher taxation has forced manufacturers to reconsider their pricing strategies.
Brokerage estimates ahead of the results indicated that cigarette volumes could decline approximately 8–9% year-on-year in Q2 FY27. Analysts also expected cigarette revenue and operating profit to contract sharply.
These estimates help explain the pressure on the business, although they should not be confused with the company’s final reported figures.
ITC’s ability to stabilise cigarette volumes while recovering margins through pricing and product changes will remain an important factor in the coming quarters.
FMCG Business Continues to Provide Growth Support
While cigarettes weakened, ITC’s non-cigarette FMCG business continued to expand.
The business includes packaged foods, personal care products, stationery, dairy products, snacks and other consumer categories. Its portfolio includes brands such as Aashirvaad, Sunfeast, Bingo!, Yippee!, Savlon and Classmate.
The company has been investing in new products, distribution, premium offerings and digital-first brands to strengthen its presence in India’s consumer goods market.
Its packaged foods business has benefited from demand for snacks, noodles, dairy products and frozen foods. Personal care products have also contributed to growth.
ITC’s digital-first and organic portfolio includes brands such as Yoga Bar, 24 Mantra Organic, Prasuma and Mother Sparsh. These businesses are part of its broader strategy to build revenue beyond tobacco.
However, FMCG growth alone cannot immediately compensate for the cigarette business’s profitability decline. The cigarette segment has historically generated substantial operating earnings, making its performance particularly important for the company’s consolidated results.
Raw-Material Inflation Adds to Margin Pressure
ITC is also dealing with higher input costs across several consumer product categories.
Edible oil, palm oil, packaging materials, laminates and other commodities have faced inflationary pressure. These costs affect the manufacturing economics of packaged foods and personal care products.
The company’s ability to manage these expenses is important because increasing product prices can affect consumer demand, particularly in price-sensitive categories.
ITC has previously highlighted the use of strategic inventory management, commodity hedging, cost controls and price-volume adjustments to manage inflation.
The company must maintain a balance between protecting its margins and keeping products affordable for consumers.
ITC’s Other Businesses Face Different Operating Conditions
ITC operates across several businesses beyond cigarettes and consumer goods. Its paperboards, paper and packaging operations and agricultural business also contribute to its financial performance.
The paperboards business has been benefiting from an improving demand environment. The integration of Century Pulp and Paper has also expanded ITC’s manufacturing capacity and increased its presence in the paper market.
The agricultural business, meanwhile, has faced challenges from international trade disruptions, subdued exports and the impact of geopolitical developments in West Asia.
These businesses provide diversification, but their earnings contributions differ from those of the cigarette business.
ITC Q2 FY27: Key Financial Developments
| Financial metric | Q2 FY27 performance | Year-on-year movement |
|---|---|---|
| Standalone net profit | — | Down 18.7% |
| Consolidated net profit | ₹4,137 crore | Down approximately 20% |
| Consolidated net profit in Q2 FY26 | ₹5,176 crore | Comparison base |
| Cigarette business profit | — | Down 27% |
| Consolidated total revenue | ₹28,318 crore | Higher than ₹19,442 crore in Q2 FY26 |
Source: Reuters and the reported Q2 results. Dashes indicate figures not independently confirmed in the sources cited here. Revenue figures are total revenue figures and should not be directly compared with net revenue after excise duty.
What ITC’s Q2 Performance Means for Its Diversification Strategy
ITC has spent several years building its presence in packaged foods, personal care, stationery, hotels and other businesses. The strategy is intended to reduce the company’s dependence on cigarettes over the long term.
Its FMCG portfolio gives ITC access to India’s expanding consumption market. Growth in packaged foods, snacks, dairy products and personal care can create additional revenue streams and strengthen its relationship with consumers.
However, diversification is a gradual process. A growing FMCG business does not automatically replace the earnings contribution of a mature, highly profitable cigarette operation.
The latest results demonstrate this challenge. Even with growth in non-cigarette FMCG, the decline in cigarette profitability and higher operating costs weighed on the overall performance.
The Bigger Picture
ITC’s Q2 FY27 results reflect the impact of taxation, consumer affordability and input-cost inflation on a diversified Indian consumer goods company. The cigarette business remains particularly sensitive to changes in tax policy because manufacturers must decide how much of the additional burden to pass on to consumers without damaging demand.
At the same time, the performance of the FMCG business shows why ITC continues to invest in products and categories beyond tobacco. India’s packaged food and personal care markets offer opportunities for expansion, but building these businesses into major profit contributors requires sustained growth and disciplined cost management.
Looking Ahead
Investors will closely monitor whether ITC can stabilise cigarette volumes and improve profitability during the second half of FY27. Further pricing actions, product launches and changes in the cigarette tax environment could influence the segment’s recovery. Management’s ability to protect its consumer franchise while managing the higher tax burden will remain important.
The performance of the non-cigarette FMCG business will also be significant. Sustained growth in packaged foods, personal care and newer consumer brands could gradually strengthen ITC’s earnings diversification. However, the company will need to manage raw-material inflation and improve operating efficiency if FMCG growth is to translate into a stronger contribution to overall profit.
Get the day’s top stories in your inbox
One concise email. No spam, unsubscribe anytime.
