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Informist, Friday, Jul. 31, 2026

 

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--ITC Apr-Jun net profit INR 35.79 bln 
--Analysts saw ITC Apr-Jun net profit at INR 44.64 bln 
--ITC Apr-Jun revenue INR 269.43 bln 
--Analysts saw ITC Apr-Jun revenue at INR 185.75 bln 
--ITC Apr-Jun net profit INR 35.79 bln vs INR 49.11 bln year ago 
--ITC Apr-Jun revenue INR 269.43 bln vs INR 210.70 bln year ago 
--ITC Apr-Jun cigarettes revenue INR 153.84 bln vs INR 85.20 bln year ago 
--ITC Apr-Jun agri business revenue INR 80.82 bln vs INR 96.85 bln year ago 
--ITC Apr-Jun paper, packaging sales INR 23.07 bln vs INR 21.16 bln yr ago 
--ITC Apr-Jun FMCG others sales INR 64.82 bln vs INR 57.87 bln yr ago 
--ITC Apr-Jun EBITDA INR 45.14 bln vs INR 62.61 bln year ago
--ITC Q1 net revenue INR 169.08 bln vs INR 197.61 bln yr ago
--ITC: Staggered pricing actions helping offset risk to cigarette volumes
--ITC:Q1 agri exports subdued as trade disruptions led to deferrals of orders
--ITC: Leaf tobacco business impacted in Q1 due to lower domestic demand
--ITC Apr-Jun net revenue, excluding agri business, down 6% on year

 

 

By Avishek Rakshit

 

KOLKATA – Falling profits from its core cigarettes business hit ITC Ltd. hard in the June quarter as sales declined after ITC raised cigarette prices substantially since Febraury in a staggered manner. Although revenue improved on year, it was namely on account of higher cigarette prices and gains in the non-cigarettes consumer goods business. 

 

ITC's gross revenue from sales of products and services, which includes excise duty paid by the company on cigarettes, increased around 28% on year to over INR 268 billion in the June quarter. 

 

However, discounting the excise duty which ITC paid on cigarettes, the country's largest cigarettes maker reported over 28% on-year decline in sales at a little over INR 169 billion in the June quarter. The Street had estimated ITC to report a revenue of around INR 186 billion. While ITC takes into account the excise duty in its gross revenue, it excludes goods and services tax and GST cess paid by the company.

 

As cigarette sales fell and raw material costs rose due to inflationary commodity costs and fuel costs, the company's profits were hit in the June quarter and the net profit fell over 13% on year to nearly INR 36 billion.

 

Sales of cigarettes is the key deciding factor in ITC's financial performance as 70% of its pre-tax profits and 47% of its revenue usually come in from cigarette sales. Hence, if cigarette sales fall, the company's financial performance is hit.

 

Sector analysts tracking ITC had projected the company to have registered around 8-10?cline in cigarette sales volumes on month. However, retailers and cigarette distributors selling ITC's products estimate the on-month volume loss much higher at 18-20% since ITC raised prices in February. 

 

Even as ITC suffered financially in the quarter under review from falling cigarette sales, the company's strategic agricultural business added to the woes as both revenue and profits fell on year. ITC is the country's largest private sector agricultural enterprise and it plays a dual role for the company. On one hand, the agricultural division acts a sourcing front for the company from where it procures raw materials such as tobacco, wheat, and other key commodities that are used to make products, it also acts as the sourcing front for exports. ITC is one of the country's largest leaf tobacco exporters and the company is also engaged in wheat, rice, and other commodity exports. 

 

Following the decline in its net revenue and profits, the company's earnings before interest, tax, depreciation, and amortisation declined around 28% on year to a little over INR 45 billion.

 

CIGARETTE SALES

ITC said it raised cigarette prices in the interests of all stakeholders. To discourage smoking and bring the tax on cigarettes close to the World Health Organization-recommended 75%, the government in February increased the goods and services tax on cigarettes to 40% from the earlier slab of 28% and also introduced a new excise duty in the range of INR 2,050-INR 8,500 per 1,000 sticks on cigarettes. Effectively, it pulled up the net tax on cigarettes to 60-70%, depending on the length, from the previous 50-55%.

 

The government's move led ITC--which has a 70% market share in the legal cigarettes industry--and its closest competitor Godfrey Phillips India Ltd. to hike prices between 21% and 41%, depending on the cigarette brand. As such price hikes pinched consumers' pockets hard, cigarette sales volumes fell sharply. In the highly regulated, legal cigarettes industry in the country, even 2-3?ll or growth in sales volume is considered substantial. 

 

ITC's gross revenue from cigarette sales, which includes excise duty, GST, and GST cess, rose 81% on year to nearly INR 154 billion due to price hikes. The pre-tax profit from cigarette sales, however, fell 35% on year to INR 33 billion in the June quarter. The fall in profits is a truer reflection of the losing sales volumes from cigarettes which ITC has been incurring since February. 

 

In a statement, ITC said that it made over 30 "interventions" within a short span of time towards re-architecting and fortifying the product portfolio, leveraging powerful trademarks across segments and price points. For instance, in the June quarter, ITC shortened the length of its King-sized bestseller cigarette brand 'Classic' to keep prices much lower. 

 

ITC said that staggered and agile price increases are aiding the cigarettes business to mitigate the risk of significant migration of volumes to illicit trade while protecting consumer franchise.

 

Even though ITC does not disclose its cigarette sales volume and market share, a sector analyst with a domestic brokerage tracking ITC said that the company's market share remained over 72% in the June quarter as its competitors also increased prices to the same extent as ITC. 

 

However, the analyst warned that the organised, legal duty-paid cigarette industry in the country may shrink in the coming quarters which might pull out existing and potential consumers to the illegal, non-duty paid cigarettes trade. Non-duty paid cigarettes, which are basically illegal cigarettes are priced substantially lower than their duty-paid counterparts as these product sales do not yield any tax revenue for the government. 

 

 

SEGMENT PERFORMANCE

Even as ITC continued to face pressures on its financial position from its core cigarettes vertical, its revenue from the non-cigarettes consumer goods portfolio grew 12% on year to around INR 65 billion and profits improved around 21% on year to INR 4.79 billion in the June quarter.

 

Dairy, snacks, noodles, frozen snacks, and personal care products drove most of the top-line growth in the non-cigarettes consumer goods business despite price increases. Ideally, price increases dampen consumer sentiment and companies take a hit on their sales volumes when prices rise. However, this year, nearly all consumer goods companies equivocally said that consumers have absorbed the price hikes realising that companies had to resort to it in face of commodity inflation induced by the West Asia war and other global macro-economic volatility. 

 

Apart from price hikes, ITC partly combated the inflationary pressures arising from the West Asia war by strategic inventory covers and commodity hedges. It continues to mitigate the impact through focused cost management initiatives, smart net revenue management, and price-volume rebalancing mechanisms. ITC said that the war in West Asia led to a surge in cost of fuel, edible oil, soap, noodles and packaging inputs. These measures helped the company improve its EBITDA margin from the non-cigarettes consumer business by 55 basis points on-year in the June quarter. 

 

ITC's agricultural business felt the impact of the West Asia war as well. Exports remained subdued as trade disruptions led to deferrals of customers' order offtakes in the quarter under review. However, this business vertical registered strong growth in value-added agri portfolio such as spices, fruits and vegetables. 

 

ITC's revenue from the agricultural vertical declined around 17% on year to INR 81 billion and profits fell 18% on year to INR 3.5 billion. 

 

The company's strategic focus continues to be on accelerating growth by rapidly scaling up its value-added portfolio and straddling multiple value chains comprising spices, coffee, frozen marine products and processed fruits.

 

ITC said the Indian leaf tobacco business was impacted on account of lower domestic demand and was further accentuated by subdued global offtake and delayed call offs by customers amid disruptions in West Asia.

 

Higher realisations and volume growth in its paper and packaging business led ITC report a 9% on-year top-line growth from this segment at INR 23 billion with the profit before interest and tax increasing 38% on year and the profit before interest and tax margin increasing 200 basis points on year. 

 

FRESH FOODS BUSINESS

As a new growth vector, ITC has come up with the fresh foods division as a separate vertical although it is currently not reporting it as a distinct arm under its profit and loss statement's vertical disclosure. 

 

The fresh foods division aims to harness ITC's expertise in food science and manufacturing, consumer goods brands, and culinary expertise to capitalise on the burgeoning online food services segment.

 

In the June quarter, this business vertical delivered a robust gross merchandise value  growth of 90% on year with the average revenue run rate crossing INR 3 billion. The full-stack platform has scaled up to 75 cloud kitchens across five cities in the country and is now being progressively introduced across India.

 

OUTLOOK

ITC said that the June quarter was marked by heightened uncertainty in the operating environment due to the ongoing war in West Asia, that triggered a sharp increase and volatility in the price of crude oil and crude-linked products along with significant trade and supply chain disruptions.

 

While consumption demand, both in rural and urban markets, remained resilient during the quarter, inflation in raw material imports is a key watch-out in the near term, the company said. India is currently experiencing significant deficit in monsoon and lower Kharif sowing levels compared to the same period last year. Additionally, spatial and temporal variations in monsoon would remain a key monitorable as well. 

 

A protracted conflict in West Asia, alongside emerging El Nino conditions that may weaken monsoons and intensify heatwaves, could weigh on growth and lead to inflation, ITC said. 

 

However, according to ITC, the macroeconomic fundamentals of the Indian economy remain resilient supported by proactive and agile policy actions by the government. 

 

Friday, shares of ITC closed 1.4% down at INR 281.00 on the National Stock Exchange. End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Akul Nishant Akhoury

 

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