ITC growth is lit, margins flicker

Good and bad

- Pallavi Pengonda

Sustained pressure on ITC Ltd's margin makes it difficult for investors to appreciate its solid revenue show in the June quarter. Standalone net total operating revenue rose nearly 21% year-on-year (y-o-y) to ₹19,750 crore in Q1. However, its earnings before interest, taxes, depreciation, and amortization (Ebitda) margin at 31.7% was way below Street view, shrinking by 547 basis points (bps), with total raw material costs up 41% y-o-y.

The consumption of high-cost leaf tobacco inventory was a drag on ITC's margins, which derived around 83% of its overall segment Ebit (earnings before interest and tax) from cigarettes. Net of excise duty, ITC's FMCG-cigarette Ebit margin fell 269 bps y-o-y to 71.4%; it had fallen 137 bps in FY25 to 72.2%.

Thus, Q1 cigarette Ebit growth at 3.7% was slower than net revenue growth of 7.6% aided by higher volumes. The company said it is seeing leaf tobacco procurement prices ease in the current crop cycle. Still, margin recovery is seen gradual.