ITC Eyes Margin Recovery In Consumer Goods Despite Cost Pressures

ITC Ltd. expects a gradual improvement in the profitability of its consumer goods business, targeting a 80–100 basis points on-year rise in operating margin over the coming quarters. The company remains confident of this recovery despite persistent pressure from high raw material costs and subdued urban demand.

Chairman and Managing Director Sanjiv Puri told shareholders at the company’s 114th annual general meeting that easing interest rates and softer overall inflation are likely to support a pick-up in consumer demand. He added that better operational performance and portfolio diversification will play a key role in margin expansion for the consumer vertical.

Puri acknowledged that gestation costs from new categories and investments in integrated manufacturing and logistics hubs are built into the current financials. Still, he said these investments are necessary for long-term growth. “Of course, this will not be linear; there could be periods where there would be challenges. But if you see over a period of time, this is the trajectory we expect will sustain,” he said.

ITC’s consumer business reported a significant margin squeeze in the March quarter. Its EBITDA margin fell to 8.9% from 11.3% a year earlier, hit by inflation in key commodities such as edible oil, wheat, potatoes, cocoa, and packaging material. This was also below the company's full-year EBITDA margin of 9.8%.

For the non-cigarette consumer goods portfolio, profit before tax fell 28% on year in the March quarter to ₹3.4 billion. For 2024-25, it dropped 11% on year to ₹15.8 billion. ITC said it will continue expanding in food categories focused on health, wellness, and organics—segments it believes will drive future growth.

Cigarettes Still the Profit Engine

The company is focusing on premiumisation and new products in its cigarettes portfolio, along with deeper market penetration. Although ITC does not disclose volume growth, analysts estimate a 2–6% rise depending on the quarter and consumer sentiment.

While cigarettes now account for around 35% of revenue, they still contribute over 75% of profit before tax. Puri reiterated that stable taxation is crucial for the business to sustain momentum, warning that any sharp hike could disrupt growth.

ITC continues to de-risk its business by building its non-cigarette verticals, including consumer goods, agri-trading, and paperboards, which now account for 65% of total revenue.