ITC Q3 FY26 Results: Profit Falls 6%, FMCG Margins Rise

1. Introduction: The “Calm Before the Tax Storm”

On January 29, 2026, ITC Limited closed around ₹318, down nearly 1.5% ahead of its Q3 FY26 result reaction. The fall did not come as a surprise. For most of the trading session, the market was already nervous, not because of the quarterly numbers alone, but because of a much bigger policy shock looming just two days away. From February 1, 2026, a sharp excise duty hike on cigarettes is set to kick in, and that single announcement has overshadowed everything else in ITC’s Q3 performance.

At first glance, the headline numbers look underwhelming. Net profit for the quarter came in at around ₹5,075 crore, showing a decline of roughly 6% year-on-year. Revenue, on the other hand, grew by about 6% to ₹18,063 crore. For a company as large and stable as ITC, such numbers often trigger disappointment. However, this is where surface-level analysis can be misleading. Last year’s Q3 profit had a boost from unusually high “other income,” which inflated the base. Strip that out, and the picture becomes far less alarming.

The real question for investors is not whether Q3 was good or bad. It is whether ITC can absorb and pass on the upcoming excise hike without permanently damaging cigarette volumes, while continuing to build strength in FMCG, hotels, and other non-tobacco businesses. In that sense, Q3 FY26 is best seen as a pause before a storm, not a breakdown in fundamentals.

ITC Official Results & Filings (MOST IMPORTANT)

2. The Financial Scorecard: Reading Beyond the Headline Numbers

A clean look at the Q3 FY26 financial scorecard helps separate noise from reality. ITC’s revenue grew by around 6% year-on-year, supported mainly by its FMCG business and steady cigarette sales. The agri-business segment, however, remained under pressure due to export restrictions and lower realizations, which capped overall topline growth.

Net profit declined by about 6.4%, but this decline is largely optical. In Q3 FY25, ITC had reported higher treasury and other income, which made the base unusually strong. When adjusted for this one-off factor, the underlying profitability trend is far more stable. EBITDA for Q3 FY26 grew by roughly 2.5%, indicating that the core operations did not weaken in any meaningful way.

One of the most important operational metrics this quarter was cigarette volume growth, which stood at around 5.5%. In a mature and heavily taxed category, this is a respectable number, especially considering the already high base. FMCG margins expanded to about 11.2%, improving by nearly 80 basis points year-on-year. This margin expansion is a key positive and suggests that ITC’s non-cigarette portfolio is slowly but steadily becoming more profitable.

The takeaway from the scorecard is simple. Ignore the profit headline and focus on operating performance. The business itself remains stable, and the so-called “miss” is more about accounting comparisons than operational weakness.

3. Segment-Wise Analysis: The Good, the Bad, and the Ugly

ITC’s diversified structure means that different segments often tell very different stories in the same quarter. Q3 FY26 was no exception, with some businesses performing well, some holding steady, and a few struggling.

The cigarette business, which remains ITC’s largest profit contributor, delivered steady growth. Revenue from cigarettes rose by about 7% year-on-year, driven by price hikes taken earlier and stable demand. The main challenge here was rising leaf tobacco costs. Climate-related disruptions and supply tightness pushed raw material prices to multi-year highs, putting pressure on margins. Even so, volume growth of 5.5% shows that demand has not cracked.

The FMCG-Others segment continues to be ITC’s long-term growth engine. Revenue in this segment grew around 8%, supported by brands like Aashirvaad, Sunfeast, YiPPee!, Fiama, and Bingo. Premiumisation is clearly visible. Consumers are shifting toward higher-value products, and ITC has been able to improve pricing without losing market share. Early signs of rural demand recovery are also visible, especially in smaller pack sizes and staples.

The agri-business segment had a mixed quarter. Government restrictions on wheat and rice exports limited growth, while commodity price volatility affected margins. This business remains highly cyclical and policy-sensitive, and Q3 FY26 was another reminder of that risk.

Paperboards and packaging was the weakest segment. Cheap imports, particularly from China, have flooded the market, hurting pricing power. This segment remains in a downcycle and is likely to stay under pressure until global capacity rationalises.

4. The Geoeconomic Angle: The February 1 Excise Duty Shock

The biggest reason investors are cautious on ITC right now has little to do with Q3 numbers and everything to do with policy. The government has announced a sharp excise duty hike on cigarettes effective February 1, 2026. This hike, estimated at around 25% on certain categories, comes as a surprise because it was announced outside the regular Budget cycle.

To protect margins, ITC will have to raise cigarette prices by roughly 10–12%. History suggests that whenever such sharp tax hikes occur, volumes typically contract for one or two quarters before stabilising. This happened in 2017 after the GST rollout and again in 2020 during pandemic-era tax adjustments. In both cases, long-term demand eventually recovered.

For short-term traders, this tax hike is a risk. Volatility is almost guaranteed in the coming quarters. For long-term investors, however, this is a familiar pattern. Policy shocks create fear, fear creates selling, and selling often creates opportunities in high-cash-flow businesses like ITC.

The agri-exports policy environment also remains tight. Restrictions on key food exports have capped growth in ITC’s agri-business. While this protects domestic food prices, it limits profitability for exporters. This is another example of how policy decisions, rather than demand weakness, are shaping near-term performance.

Union Budget / Excise Duty Policy (CRITICAL FOR TAX ANGLE)

5. Fundamental Outlook: Is the Dividend Yield the Real Safety Net?

One of ITC’s strongest attractions for long-term investors has always been its dividend yield. At current prices, ITC offers a yield of around 4%, which is close to the upper end of its historical range. In the past, whenever the dividend yield approached 4–4.5%, the stock tended to find strong support.

Valuation is another important consideration. ITC is currently trading at roughly 22 times earnings, down from around 26 times during its recent peak. This de-rating reflects policy uncertainty rather than business deterioration. Compared to other large FMCG companies, ITC still trades at a discount, despite having a strong balance sheet and diversified cash flows.

The upcoming hotel demerger remains a key medium-term trigger. ITC’s hotel business reported revenue growth of around 15% in Q3, supported by strong domestic travel demand. Once demerged, this business could unlock value by being valued independently, rather than being hidden inside a conglomerate structure.

From a balance sheet perspective, ITC remains rock-solid, with strong cash generation and low debt. This financial strength gives it the ability to absorb short-term shocks and continue investing in brand building and capacity expansion.

6. Conclusion: The Verdict on ITC After Q3 FY26

The Q3 FY26 result of ITC is best described as a non-event in isolation and highly relevant in context. The profit decline is largely an accounting effect, while the core operations remain stable. Cigarette volumes are holding up, FMCG margins are improving, and the hotel business is gaining momentum.

The real risk lies in the near-term impact of the February 1 excise duty hike. Volatility over the next few quarters is almost certain. However, history suggests that ITC has navigated such policy shocks before and emerged stronger each time.

For investors with a long-term horizon, the current phase can be seen as a “penalty box” moment. The stock is under pressure due to policy fears, not because the business is broken. The steady improvement in FMCG margins proves that ITC is slowly reducing its dependence on cigarettes, even though that segment will remain a cash cow for years.

The most sensible strategy in this environment is staggered accumulation rather than aggressive buying. Use periods of tax-related panic to build exposure gradually. As FY27 approaches and policy uncertainty settles, ITC’s strong cash flows, improving FMCG profitability, and potential hotel demerger could once again come into focus.

In simple terms, ITC is not exciting right now, but it is resilient. And in markets shaped by policy shocks and global uncertainty, resilience often turns out to be the most valuable asset of all.

NSE Stock Data (Price & Volume Context)

❓ FAQ

FAQ 1: Why did ITC profit fall in Q3 FY26?

ITC’s net profit declined mainly due to a high base effect from last year’s other income and higher input costs. Core business performance remained stable.