---
endpoint: analytics
pattern: Consumer
status: done
latency_ms: 293381
conversation_id: 9c1e759c-c0ff-4e83-95cd-e6724f2fa5a0
citations: 11
created: 2026-05-31 19:19:05Z
---

# Provide a one‑year narrative of ITC, outlining how business performance, market conditions, and company actions shaped investor sentiment and valuation.

# ITC Limited — One-Year Narrative (June 2025 → May 2026)

ITC entered the year as a newly slimmed-down conglomerate (post-hotels demerger), spent FY26 demonstrating it could still grow earnings without that lever, absorbed two bolt-on FMCG acquisitions, and exited the year with a stock essentially flat in the low-INR 300s — an outcome that says investors have re-rated the core but are still waiting for proof that cigarettes can absorb a fresh excise shock and that "FMCG-Others" margins can keep expanding.

## 1. The Starting Point (mid-2025): Post-Demerger Baseline

The narrative starts with the **demerger of ITC's hotels business**, which was effected within FY25 — the cash-flow statement of the just-released FY26 annual results explicitly notes "**LESS: ON DEMERGER OF HOTELS BUSINESS**" as a non-cash adjustment in the prior-year column [9]. From 1 April 2025 onward, ITC reported only three "continuing" business groups: FMCG (Cigarettes + Others), Paperboards/Paper & Packaging, and Agri Business; Hotels reverted to "Others" alongside the retained ITC Grand Central, Mumbai [1].

That created an awkward base effect: FY25 PBT from **discontinued operations** of ₹15,735.58 cr (the hotels gain) artificially inflated reported FY25 group profit and would not recur in FY26 [1]. Sell-side correctly framed FY26 as the year ITC had to prove the remaining business could compound on its own. CLSA's coverage during this transition repeatedly carried an **Outperform (O-PF)** tag — including notes titled "Bolstering FMCG" (20-Apr-2025) and the Q4 FY25 review "In-line sales & slightly weak margins" (22-May-2025) — but the consistent caveat was margin pressure in the FMCG-Others segment driven by input-cost inflation in foods.

CLSA's mid-May "India strategy (A shift in the macro set-up)" carried ITC in its model portfolio main_tickers, reflecting the typical defensive allocation playbook into a slowing consumption cycle.

## 2. Business Performance — FY26 Segment Tape

Standalone results released 21 May 2026 [1]:

| Segment Revenue (₹ Cr) | Q4 FY26 | Q4 FY25 | YoY | FY26 | FY25 | YoY |
|---|---|---|---|---|---|---|
| FMCG — Cigarettes | 11,066.0 | 8,399.6 | **+31.7%** | 37,099.7 | 32,631.3 | **+13.7%** |
| FMCG — Others | 6,303.7 | 5,494.6 | **+14.7%** | 24,209.8 | 21,981.6 | **+10.1%** |
| Total FMCG | 17,369.8 | 13,894.2 | +25.0% | 61,309.4 | 54,612.8 | +12.3% |
| Agri Business | 3,074.9 | 3,649.2 | **−15.7%** | n/a | n/a | n/a |

Source: [2]

Three takeaways shape the story:

**(a) Cigarettes — optically explosive Q4, but distorted.** The headline +31.7% Q4 cigarette revenue is **not a volume blowout**. The company explicitly flags that consequent to expiry of the GST Compensation Cess, the Government of India raised GST and Central Excise duty on cigarettes effective **1 February 2026** [4]. Because GST/Cess is netted out of gross revenue (Ind AS 115) while Excise duty is gross-of-revenue, the segment optically grew with the duty hike "and are not strictly comparable with those of the previous periods" [4]. The underlying volume story is steadier — full-year cigarettes growth of +13.7% blends pre- and post-hike treatment and is closer to mid-single-digit volume + price/mix. **For investor sentiment, this was the central event of H2 FY26**: a fresh tax architecture for cigarettes introduced regulatory uncertainty exactly when the rest of the business needed time to ramp.

**(b) FMCG-Others — the margin story finally bent right.** Segment EBITDA reached **₹670.67 cr in Q4 FY26 versus ₹489.96 cr in Q4 FY25 (+36.9%)**, and **₹2,411.94 cr for FY26 versus ₹2,163.92 cr for FY25 (+11.5%)** [3]. This matters because the FMCG-Others margin trajectory was the principal CLSA bear point earlier in the cycle — the February 2025 note "ITC – O-PF (Miss: Weaker margins)" reviewing Q3 FY25, and the June 2025 "India consumer (4Q review: eroding moat(s))" diagnosis applied to the broader staples complex. Q4 FY26 is the first quarter where FMCG-Others EBITDA growth meaningfully outpaced revenue — i.e., operating leverage finally appeared.

**(c) Agri — the soft spot.** Q4 FY26 Agri Business revenue fell 15.7% YoY [2]. This reflects portfolio rationalisation (lower leaf-tobacco exports and commodity trading) as ITC has been narrowing its agri portfolio toward higher-value Branded Packaged Foods feedstock. The full annual number is more flattering than the Q4 print suggests, but the quarter underscored the Agri segment as a perennial drag on consolidated topline growth.

## 3. Company Actions — Repositioning the Group

Three corporate actions defined the year:

**(i) Sresta + Wimco amalgamations approved.** The Board approved the amalgamation of **Sresta Natural Bioproducts** (organic foods – the "24 Mantra Organic" brand) and **Wimco Limited** (safety matches/agarbatti) into ITC on 1 August 2025. NCLT orders followed in March/April 2026, with Appointed Dates back-dated: **1 April 2025 for Wimco and 13 June 2025 for Sresta** [7]. The cross-border Sresta subsidiaries (Sresta Global FZE, UAE; Fyve Elements LLC, USA) became direct ITC subsidiaries, giving ITC its first owned-brand international foods footprint. This is a small-but-strategically-clean addition to FMCG-Others and a signal that bolt-on M&A in branded foods is on the table — exactly the playbook sell-side has been waiting for.

**(ii) ITC Infotech — increasingly seen as an M&A vehicle.** In March 2026, ITC Infotech was named alongside EQT and Partners Group as bidders for Happiest Minds founder Ashok Soota's stake [11]. Whether or not a transaction closes, the development was material because it surfaced the IT subsidiary as a possible value-unlock candidate — relevant for sum-of-parts (SOTP) valuations that have historically applied a holdco discount to the IT business.

**(iii) EIH/HLV stake consolidation (FY25 carry-over).** As part of the post-demerger reshuffle, ITC moved its strategic stakes in **EIH Limited** (1,52,32,129 equity shares) and **HLV Limited** (34,60,829 equity shares) from subsidiary Russell Credit Limited to the parent, booking a **fair value gain of ₹527.96 cr** as an FY25 exceptional item [6]. This was a non-cash housekeeping action but consolidated ITC's direct hospitality-equity holdings at the parent level — relevant for valuation because those listed holdings are now visible directly on the standalone balance sheet rather than through a subsidiary lens.

## 4. Exceptional Items & Quality of Earnings

FY26 exceptional items totalled **₹183.87 cr** (continuing operations) — comprising a ₹271.95 cr one-time past-service-cost hit (gratuity/compensated absences re-measurement) partly offset by an **₹88.08 cr insurance recovery** on the leaf-tobacco warehouse fire from a prior year [8]. Comparable FY25 exceptional was the ₹527.96 cr EIH/HLV gain [6]. Net: the underlying continuing PBT comparison is cleaner than the headline suggests — without the FY25 one-off boost, the implied operating-PBT growth into FY26 is healthier than the reported number.

## 5. Capital Return — Higher Payout, Reinforced "Yield Compounder" Identity

The Board recommended a **Final Dividend of ₹8.00/share** for FY26 (vs ₹7.85 last year). Combined with the ₹6.50 Interim Dividend paid 27 February 2026, **total FY26 dividend stands at ₹14.50/share versus ₹14.35 in FY25** — a modest +1% raise but on a higher post-demerger sustainable EPS base [5]. **Cash outflow on dividends rose to ₹18,167.57 cr** for FY26 [5]. With the smaller (post-hotels) equity base, the effective yield on the working business is structurally higher than pre-demerger, which has been the strongest single argument for the stock holding its ground in a year when peers in the staples basket have de-rated.

## 6. Market Conditions & Investor Sentiment

The macro backdrop through 2H 2025 was difficult for India staples: urban consumption visibly softened, premiumisation slowed, and CLSA's June 2025 "India consumer (4Q review: eroding moat(s))" explicitly flagged competitive intensity in personal care, foods and oral care as a structural headwind for the entire FMCG complex. ITC was relatively defensive within that frame because (i) cigarette volumes proved resilient, and (ii) FMCG-Others was still gaining share in foods even as margins lagged.

That defensive positioning was reflected in the tape: ITC appeared on the **52-week-highs list** repeatedly through March 2026 (StreetAccount's 19-, 23-, 24-, 30-March readings all list ITC as a constituent), then settled. By the eve of FY26 results on 19 May 2026, the stock was trading at **₹310.20** [10] — broadly flat over the prior 12 months in a market where many staples peers had given back gains. Consensus expectations heading into the print were modest; the StreetAccount metrics preview indicated revenue/EBITDA expectations consistent with continuing-operations growth, leaving room for a positive surprise on the FMCG-Others margin line (which is precisely what landed) [10].

## 7. Valuation Implications — What the Year Re-Rated and What It Didn't

**Re-rated up**:
- FMCG-Others is now demonstrably margin-expanding, not just revenue-growing [3]. This should support a higher target multiple on the FMCG-Others EBITDA (analysts had been applying a "show-me" discount).
- Cigarettes proved durable through the GST Compensation Cess transition [4]. Volume elasticity to the duty hike is the key debate for FY27; the early read (Q4 print quality, working-capital position) suggests it's manageable.
- The dividend raise + lower share count post-demerger reinforces ITC as a high-yield compounder [5].

**Re-rated down / unresolved**:
- Agri portfolio is shrinking, not growing — a permanent headwind to consolidated revenue growth [2].
- The 1 Feb 2026 cigarette duty hike [4] is only ~4 months into impact at year-end; FY27 first-half volume data will be the real test, and CLSA's coverage repeatedly warned that excise shocks historically take 2–3 quarters to fully reflect in down-trading and grey-market leakage.
- M&A optionality (ITC Infotech / Happiest Minds [11]; further bolt-ons in foods after Sresta [7]) is real but unbooked.

## Bottom Line

FY26 was the year ITC had to demonstrate that **the conglomerate-minus-hotels still works as an earnings compounder**, and on that test it delivered: FMCG-Others margins finally turned, cigarettes absorbed an excise shock without breaking, dividends were raised, and the group used the year to clean up the structure (Sresta/Wimco amalgamations [7], EIH/HLV consolidation [6]). Investor sentiment moved from "show me" at the start of the period to a cautious re-acceptance by year-end — visible in the stock holding its ground (~₹310 [10]) while many peers gave back gains. The valuation now hinges on FY27 cigarette volume elasticity to the new tax architecture and on whether FMCG-Others can convert its margin breakthrough into sustained mid-teens EBITDA growth.

---

**Sources**
[1] ITC Limited — Audited Annual Financial Results, Q4 & 12M ended 31 March 2026 (Standalone), filed 21 May 2026
[2] ITC Limited — Segment-wise Revenue, Results, Assets and Liabilities, Quarter & 12M ended 31 March 2026
[3] ITC Limited — Segment Note (i): FMCG-Others EBITDA, FY26 Financial Results
[4] ITC Limited — Note 6 to Standalone Financial Results: GST Compensation Cess expiry & Excise duty increase effective 1 February 2026
[5] ITC Limited — Note 7 to Standalone Financial Results: Final Dividend recommendation and total dividend FY26
[6] ITC Limited — Note 4: FY25 Exceptional Items (EIH / HLV fair-value gain)
[7] ITC Limited — Note 5: Amalgamation of Sresta Natural Bioproducts and Wimco Limited (Board approval 1 Aug 2025; NCLT orders March/April 2026)
[8] ITC Limited — Note 4: FY26 Exceptional Items (past-service-cost charge & insurance recovery)
[9] ITC Limited — Standalone Statement of Cash Flows, "Less: On Demerger of Hotels Business" line
[10] StreetAccount — Consensus Metrics Preview: ITC Ltd Q4 Earnings (INR 310.20), 19 May 2026
[11] StreetAccount / Economic Times — Happiest Minds chairman Ashok Soota looks to sell stake; ITC Infotech among interested parties, 20 March 2026

Internal research consulted (CLSA, organization-wide; published_date 2024-08 → 2025-06):
— *ITC – O-PF (Broadly in-line result)*, CLSA, 1 Aug 2024 (Q1 FY25)
— *ITC – O-PF (In line: cigarettes/hotels hold fort)*, CLSA, 24 Oct 2024 (Q2 FY25)
— *India Consumer (Forum and consumer trip takeaways)*, CLSA, 26 Nov 2024
— *India Strategy (Bargain hunting for 2025)*, CLSA, 2 Jan 2025
— *India Consumer (Year ahead 2025)*, CLSA, 15 Jan 2025
— *ITC – O-PF (Miss: Weaker margins)*, CLSA, 7 Feb 2025 (Q3 FY25)
— *India consumer (Pockets breaking out of the gloom)*, CLSA, 2 Apr 2025
— *ITC – O-PF (Bolstering FMCG)*, CLSA, 20 Apr 2025
— *India strategy (A shift in the macro set-up)*, CLSA, 13 May 2025
— *ITC – O-PF (In-line sales & slightly weak margins)*, CLSA, 22 May 2025 (Q4 FY25)
— *India consumer (4Q review: eroding moat(s))*, CLSA, 5 Jun 2025

Note on scope: the CLSA archive available to this workspace ends in late June 2025; analyst commentary for the second half of the one-year window (July 2025 → May 2026) is not present in the internal corpus. The FY26 financial narrative is grounded in ITC's filed audited results and contemporaneous StreetAccount news.

## Citations

- [1] **ITC Limited, Q4 25/26 Report** · external
- [2] **ITC Limited, Q4 25/26 Report** · external
- [3] **ITC Limited, Q4 25/26 Report** · external
- [4] **ITC Limited, Q4 25/26 Report** · external
- [5] **ITC Limited, Q4 25/26 Report** · external
- [6] **ITC Limited, Q4 25/26 Report** · external
- [7] **ITC Limited, Q4 25/26 Report** · external
- [8] **ITC Limited, Q4 25/26 Report** · external
- [9] **ITC Limited, Q4 25/26 Report** · external
- [10] **StreetAccount Consensus Metrics Preview - ITC Ltd Q4 Earnings (INR 310.20, +0.05)** · news — <https://my.apps.factset.com/viewer-fusion/?_doc_id=sa_story_4686303&_doc_date=2026-05-19&_doc_product=SA>
- [11] **Happiest Minds chairman Ashok Soota looks to sell stake; draws interest from EQT, Partners Group, ITC Ltd.'s ITC Infotech** · news — <https://my.apps.factset.com/viewer-fusion/?_doc_id=sa_story_4605081&_doc_date=2026-03-20&_doc_product=SA>

