HDFC Securities Pick of the Week 04th May'26: ITC Ltd

FY26 for ITC reflects steady execution amid a challenging policy backdrop. The sharp stock correction following the February 2026 cigarette tax revamp overlooks ITC’s proven resilience across past tax cycles. Cigarettes remain a highly durable cash engine, contributing ~80% of EBIT, with ITC historically sustaining market share through calibrated price hikes despite near-term volume pressure.

While the latest tax hike may cause a temporary 15-20% volume impact, recovery is expected by 2HFY27, supported by stickier premium demand. Importantly, ITC’s FMCG portfolio continues to scale with double‑digit growth across foods, personal care, and home care, steadily reducing dependence on cigarettes. Agri value‑added initiatives and the hotels demerger further improve capital efficiency, positioning ITC for balanced, long-term value creation.

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