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.