ITC Ltd shares gained nearly 3 percent in early trade on Monday, emerging among the top gainers on the Nifty 50, as investors looked past weak fiscal first quarter earnings, and instead focused on expectations of a gradual recovery in its core cigarette business.

The stock rose as much as 2.94 percent to Rs 289.25 in early trade, after closing at Rs 281 on Friday, down 1.42 percent ahead of its quarterly results. Despite Monday's gains, the stock remains down 22.8 percent so far in 2026, compared with a 6.8 percent decline in the Nifty 50. ITC commands a market capitalisation of more than Rs 2.4 lakh crore.

ITC on Friday reported a weaker-than-expected June-quarter performance. Standalone net profit declined 27.1 percent year-on-year to Rs 3,578.8 crore, while revenue fell 14.4 percent to Rs 16,908 crore. EBITDA dropped 27.9 percent to Rs 4,514 crore, with margin contracting to 26.7 percent from 31.7 percent a year earlier. Both net profit and revenue missed CNBC-TV18 poll estimates.

Despite the earnings miss, most brokerages retained constructive long-term views, saying that the impact of the sharp tax increase on cigarettes is likely to moderate over the rest of the financial year.

CLSA maintained its Outperform rating on ITC stock with a target price of Rs 388 per share, implying more than 38 percent upside from Friday's closing price. The brokerage said cigarette revenue declined 25 percent year-on-year because of lower realisations, an adverse product mix and a 6 percent volume decline, while cigarette EBIT fell 35 percent following the sharp tax increase. It added that ITC's staggered price hikes and launch of new variants were aimed at limiting illicit trade. The FMCG business excluding cigarettes delivered 12 percent year-on-year growth, broadly in line with expectations.

Nomura upgraded the stock to Buy with a target price of Rs 340, saying the risk-reward has turned favourable and the worst appears to be behind the company. The brokerage said cigarette volumes declined around 5 percent year-on-year, better than its estimate of a 10 percent decline. But, cigarette EBIT remained weaker than expected. It expects EBIT per stick to recover to pre-tax hike levels by the fourth quarter of FY27.

Kotak Institutional Equities retained its Buy rating with a target price of Rs 360, describing the quarter as slightly below expectations. It said cigarette volumes held up better than expected despite a roughly 25 percent increase in consumer spending due to price hikes, indicating that ITC's portfolio strategy helped protect volumes. However, the brokerage cut its FY27 EPS estimate by 5 percent while expecting the pace of EBIT decline to moderate through the year.

JPMorgan maintained a Neutral rating with a target price of Rs 310, saying the earnings miss was driven by weaker cigarette profitability. It believes the company is resetting its portfolio following the tax regime change, and expects cigarette EBIT recovery to approach neutrality by the fourth quarter of FY27. The brokerage added that FMCG and paper revenues were broadly in line with expectations, although margins disappointed.

HSBC also retained a Hold rating with a target price of Rs 320. It estimated cigarette volumes declined 5-6 percent during the quarter and expects the EBIT decline to narrow to near-flat by the fourth quarter of FY27. While the FMCG business posted 12 percent revenue growth, HSBC said that inflationary pressures are likely to intensify. The brokerage cut its FY27-28 EPS estimates by 4-7 percent.

Macquarie maintained its Neutral rating with a target price of Rs 300, saying higher cigarette taxes and weak agri-business profitability drove the earnings miss. The brokerage supported management's strategy of protecting cigarette volumes from illicit trade but said the timing of a full recovery in cigarette profitability remains uncertain. It also reduced its FY27-29 EPS estimates by 9 percent.