ITC Q1 FY27 Results: The FMCG Profit Shift for a Holder Who Isn't Betting on Cigarettes

I have held ITC Limited (NSE: ITC) since 2021, and my thesis has never really been about cigarettes. It is about whether the FMCG-Others business, the Aashirvaad, Sunfeast, Bingo, Fiama, Engage side of the company, can grow into India's largest FMCG player over the next decade or so, while the cigarette business gradually becomes a smaller and smaller part of the story. Q1 FY27 results, approved by the board on July 31, 2026, are the first data point of the new financial year, and the question I brought to them was simple: is the FMCG side actually pulling its weight, or is it still riding on the cigarette business's coattails?

Before going further, a disclosure about what this post is and is not. I only have ITC's official unaudited consolidated financial results statement for this quarter, the filing made under SEBI Listing Regulation 33. I do not have the results presentation, the press release, or an earnings call transcript this time, unlike my ITC Q4 FY26 earnings breakdown, where I could lean on management commentary and analyst notes. That means this post sticks strictly to what the raw numbers and their accompanying notes disclose, and I will flag clearly where I simply don't have an explanation for something.

If you want the full business history and moat framework before reading this, my ITC Limited business analysis covers everything from the company's tobacco origins to its present-day segment structure.

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Quick Numbers at a Glance

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Why the 27.8% Revenue Growth Number Is Not Real

The consolidated gross revenue line jumped 27.8% year on year, and the cigarette segment's revenue jumped a striking 73.7%, from Rs. 9,554 Cr to Rs. 16,597 Cr. Neither of those numbers reflects how much more ITC actually sold.

The filing's own notes explain why. The GST Compensation Cess on cigarettes expired, and effective February 1, 2026, the government raised GST and central excise duty on cigarettes to replace it. Under the accounting rules ITC follows (Ind AS 115 and Schedule III of the Companies Act), GST is excluded from reported revenue, but excise duty is not. So when excise duty on cigarettes rises sharply, ITC's reported gross revenue rises with it, even if it sold the exact same number of cigarettes at the same price to the trade. In this quarter, the excise duty expense line alone jumped from Rs. 1,635 Cr to Rs. 10,409 Cr year on year, which is most of the story behind the headline revenue growth.

I don't have a net-of-duty growth figure for the cigarette segment this quarter, because this filing doesn't disclose one and I don't have a press release or analyst note to cross-check against this time. If you want the fuller explanation of how this tax change works, I walked through it in more detail in the Q4 FY26 write-up. The short version for this quarter: treat the 27.8% and 73.7% headline growth numbers as a tax accounting artifact, not a demand signal.

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The Number That Actually Speaks to My Thesis

Strip out the cigarette segment entirely and look at FMCG-Others, the business my long-term thesis is actually about. Segment revenue grew 15.3% to Rs. 6,688 Cr, and segment profit grew 21.5% to Rs. 485 Cr. That pushes the segment's profit margin from roughly 6.9% to roughly 7.25% of segment revenue, a modest but real improvement, and profit growing faster than revenue is exactly the pattern you want to see from a business that is supposed to be scaling into profitability.

Two portfolio moves in the filing's notes are directly relevant to the "largest FMCG player" thesis. Sproutlife Foods Private Limited became a subsidiary of ITC effective April 1, 2026, after ITC gained the right to nominate a majority of its board. Separately, ITC's Group increased its stake in Mother Sparsh Baby Care Private Limited, an associate company, to 49.32% on a fully diluted basis as of May 19, 2026. Both are branded consumer businesses (Sproutlife in foods, Mother Sparsh in baby and personal care), and both are the kind of bolt-on moves you'd expect from a company actively building toward broader FMCG scale rather than sitting still.

There's a capital-intensity detail worth noting here too. FMCG-Others segment assets stood at Rs. 18,832 Cr this quarter, larger than the FMCG-Cigarettes segment's Rs. 13,795 Cr in assets, yet FMCG-Others produced less than an eighth of the profit that cigarettes did this quarter (Rs. 485 Cr versus Rs. 3,769 Cr). This is not a knock on the FMCG-Others business; it's a reminder that it is still in a capital-heavy build-out phase relative to the mature, asset-light cigarette franchise. I'm not treating this as a formal return-on-capital calculation since segment assets are a single point-in-time balance and not an average capital base, but directionally it tells you the FMCG bet is still earning a much lower return on the capital tied up in it than cigarettes does, which is exactly what you'd expect from a business still investing in brand-building and distribution rather than harvesting scale.

Put together, FMCG-Others' share of total FMCG segment profit rose from about 6.8% a year ago to about 11.4% this quarter. Some of that shift is genuine FMCG-Others improvement. Some of it is simply the denominator shrinking because cigarette profit fell so much. Both things are true at once, and it would be misleading to credit the shift entirely to FMCG-Others strength.

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The One-Off Gain Hiding Inside the Profit Decline

Here's a number that a quick skim of the headline might miss in the other direction. Reported profit before tax fell 17.8%, but that decline was cushioned by a Rs. 405.88 Cr exceptional gain that would not otherwise be there. Under Ind AS 103 (the accounting standard for business combinations), when Sproutlife became a subsidiary, ITC's Group had to remeasure its previously-held stake in Sproutlife at fair value, and that remeasurement produced a one-time, non-cash gain of Rs. 405.88 Cr, booked as an "Exceptional Item" in this quarter's results.

Strip that gain out, and profit before tax before exceptional items actually fell 23.5% year on year, from Rs. 7,128 Cr to Rs. 5,455 Cr. That is the more honest comparison of this quarter's underlying operating performance against last year's, and it's meaningfully worse than the 16.2% decline in reported profit after tax that will show up in most headlines. I'd rather know this and hold the stock with clear eyes than be quietly reassured by a number that an accounting entry, not the business, produced.

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The Cigarette Engine Slowed, and I Don't Yet Know Why

FMCG-Cigarettes segment profit fell 31.5% year on year, from Rs. 5,499 Cr to Rs. 3,769 Cr. Even after that decline, cigarettes still supplied about 75% of total FMCG segment profit and the clear majority of the company's overall profit this quarter. My thesis doesn't depend on the cigarette business growing, but it does depend on the cigarette business continuing to generate enough cash to fund the FMCG build-out while that transition plays out, so a profit decline of this size in a single quarter is worth sitting with rather than waving away.

This is exactly where I have to be honest about the limits of this filing. It tells me the number went down. It does not tell me why: whether it's volume loss to illicit trade following the February 2026 excise hike, pricing lag as the industry absorbs the new duty structure, one-off cost items, or something else. I don't have this quarter's press release, presentation, or call transcript to check, so I'm not going to speculate. I'll be watching for that context when ITC's fuller disclosures for the quarter become available.

The Agri Business segment also had a rough quarter: revenue fell 16.3% to Rs. 8,138 Cr and segment profit fell 17.3% to Rs. 360 Cr. Again, the filing gives me the number without the reason, so I'm noting it as a gap in what I currently know rather than guessing at a cause.

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Key Takeaways

• Consolidated profit after tax (owners) fell 16.2% year on year to Rs. 4,394 Cr; EPS fell to Rs. 3.51 from Rs. 4.19.
• The reported 17.8% profit-before-tax decline understates the operating weakness: excluding a one-off Rs. 405.88 Cr exceptional gain from Sproutlife Foods becoming a subsidiary, profit before tax fell 23.5%.
• FMCG-Others segment revenue grew 15.3% to Rs. 6,688 Cr and segment profit grew 21.5% to Rs. 485 Cr, with margin edging up to roughly 7.25% from roughly 6.9%.
• FMCG-Others' share of total FMCG segment profit rose from about 6.8% to about 11.4%, though partly because cigarette profit fell, not purely because FMCG-Others grew.
• FMCG-Cigarettes segment profit fell 31.5% to Rs. 3,769 Cr but still supplied about 75% of FMCG segment profit; this filing does not disclose why.
• The headline 27.8% consolidated revenue growth, and the 73.7% jump in cigarette segment revenue, are largely an accounting effect of the excise duty hike that took effect February 1, 2026, not a demand signal.
• Sproutlife Foods (branded foods) became a subsidiary and ITC's stake in Mother Sparsh Baby Care (personal care) rose to 49.32%, both consistent with active FMCG portfolio expansion.
• This filing alone doesn't explain the Agri Business decline (revenue down 16.3%, profit down 17.3%) or the drivers behind cigarette profit weakness; worth checking against the fuller results presentation and press release when available.

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This article reflects the personal views of the author as a shareholder of ITC Limited. It is not investment advice. Please do your own research and consult a SEBI-registered financial advisor before making any investment decisions. All financial data is sourced from ITC Limited's official unaudited consolidated financial results filing for the quarter ended June 30, 2026, approved by the Board of Directors on July 31, 2026.

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Source

• ITC Limited, "Statement of Unaudited Consolidated Financial Results for the Quarter ended 30th June, 2026," including Segment-wise Revenue, Results, Assets and Liabilities, filed under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, Regulation 33, dated July 31, 2026.