ITC shares in focus after Q3 results. Should you buy, sell or hold?

ITC shares are set to be in focus on Friday after the cigarettes-to-hotels conglomerate posted its December-quarter numbers, with brokerages saying the business delivered largely as expected, but sharply higher cigarette taxes from February 1 have capped optimism, keeping most brokerages on the sidelines even after the stock’s steep January correction.

ITC shares ended Thursday at Rs 318, down 0.7% and just above their 52-week low of Rs 317.85. The stock has fallen more than 20% so far this month after the government announced a sharp increase in excise duty on cigarettes, an overhang that continues to dominate investor thinking despite resilient operating performance in the December quarter.

The company’s standalone net profit fell 6.1% year-on-year to Rs 5,088.83 crore, dragged down by a one-time new labour code cost of Rs 273.83 crore. Revenue from operations rose 5.8% YoY to Rs 19,359.46 crore, while EBITDA increased 7.6% YoY to Rs 6,271 crore. ITC also announced an interim dividend of Rs 6.5 per share, with February 4, 2026 set as the record date.

Operationally, growth was broad-based. Cigarette revenue rose 8% YoY to Rs 8,790.76 crore, FMCG (others) revenue increased 11.1% YoY to Rs 6,019.69 crore, agri business revenue grew 6.2% YoY to Rs 3,560.27 crore, and paperboards, paper and packaging revenue edged up 2.7% YoY to Rs 2,202.41 crore. With the results already known, however, broker commentary has become the primary driver of sentiment.

The company declared an interim dividend of Rs 26.5 per share.

Morgan Stanley’s take on ITC

Morgan Stanley maintained an Equal Weight rating on ITC with a target price of Rs 366, pointing to better-than-expected operating performance but no clear trigger for a rerating.
The brokerage said there was an “overall beat at PAT; EBITDA ahead of estimates”, aided by improved cigarette volumes, with implied volume growth of about 6.5%. It noted that FMCG growth accelerated to 11.1% YoY, with margins expanding by 150 basis points YoY, while agri EBIT margins remained steady and paper margins improved quarter-on-quarter.
Despite the operating positives, the brokerage refrained from turning constructive on the stock amid concerns around the evolving tax environment.

Motilal Oswal’s view on ITC

Motilal Oswal reiterated its Neutral rating on ITC with a target price of Rs 365, implying about 15% upside from current levels, but described the quarter as a “healthy performance but non-event after tax hike”.

The brokerage said ITC “continued to deliver a healthy performance in core segments in 3QFY26”, with consolidated gross cigarette sales growing 8% YoY and volumes rising about 6.5%, led by strong traction in premium offerings. Cigarette EBIT grew 5.7% YoY, but margins contracted 140 basis points YoY to 56.7%, impacted by elevated leaf tobacco prices.

Motilal Oswal highlighted the strength in FMCG, where consolidated sales rose 12.6% YoY and EBIT jumped 40% YoY, with margin expansion of 140 basis points to 7.3%. Growth was driven by staples, biscuits, noodles, dairy, premium personal wash, homecare and agarbattis, while GST-related trade disruptions normalised by late October 2025.

In the agri business, sales grew 6% YoY, though EBIT margins contracted 80 basis points to 12.8%. The paper business, the brokerage said, was “gradually seeing recovery”, with underlying EBIT margins already in double digits, even as reported margins remained under pressure.

Crucially, Motilal Oswal underscored the impact of the recently announced GST and excise duty changes, which will sharply raise cigarette taxes from February 1, 2026. “We downgraded ITC from BUY to Neutral after the announcement,” it said, warning that earnings pressure on cigarettes would erode near-term catalysts such as softer tobacco prices and recovery in FMCG and paper. While ITC’s broad cigarette portfolio could help cushion the impact, the brokerage cautioned that competition from illicit cigarettes would weigh on the formal industry.

What ITC investors should watch

Brokerage reactions suggest that ITC’s December-quarter performance reaffirmed confidence in its operating execution, particularly in FMCG, but did little to alter the near-term investment narrative. With cigarette taxation set to rise sharply and the stock already under pressure, analysts see valuation comfort but limited visibility on upside.

ITC remains fundamentally resilient, but policy risk, not quarterly performance, is likely to dictate the stock’s direction in the months ahead.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)