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Informist, Thursday, May 21, 2026

By Avishek Rakshit

KOLKATA – A sharp increase in cigarette prices February onwards pushed up ITC Ltd.'s gross revenue for the March quarter abruptly, however, cigarette sales, which is the key determining factor of the company's profit, fell in the March quarter after the price increase. This led ITC to post a severe decline in its profit for the quarter under review. 

ITC's gross revenue, which includes excise duty paid by the company on cigarettes, increased 17% on year to nearly INR 217 billion. However, discounting the excise, the country's largest consumer goods company by revenue, reported a 7% decline in sales at around INR 161 billion in the March quarter as against INR 173 billion in the corresponding quarter. The Street had estimated ITC to report a revenue of over INR 183 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. 

ITC's net profit from continuing operations in the March quarter, which does not take into account the profit from the hotels business and ITC's gains after demerger of the hotels division, was a little over INR 51 billion as against INR 49 billion in the year-ago quarter. ITC had reported a net profit of over INR 195 billion in the March quarter of 2024-25 (Apr-Mar) which includes its gains from the hotels demerger. 

A sector analyst with a domestic brokerage said that while ITC took a hit on its top line primarily owing to 15-20% decline in cigarette sales volume, price hikes in cigarettes and other consumer goods products helped the company hold on to profit growth in the March quarter.  

In its notes to the financial statement, ITC said the gross revenue from sale of products and services and excise duty for the March quarter and year ended March, and value of inventory as of Mar. 31 reflect the impact of sharp increase in excise duty and are not strictly comparable with those of the previous periods.

Despite ITC's aggressive focus on diversifying its consumer goods portfolio and trading business, cigarette sales account for 46% of its company's gross sales and 75% of its pre-tax profit. This makes performance of the company's cigarette division the key determinant of its profit and revenue.

However, the company's earnings before interest, tax, depreciation, and amortisation increased 7.3% on year to INR 64.26 billion and excluding the agricultural sales and trading business, which saw some stress in the March quarter, the EBITDA was up 9% on year.

CIGARETTE SALES

In a statement, ITC said that after taxes rose sharply, it adopted a strategic approach to mitigate the impact of the unprecedented increase in tax incidence and sustain its market standing. This included, staggered and agile price increases to minimise the risk of a significant shift of volumes to illicit trade and consequent loss of revenue to the exchequer, and re-architecting the product portfolio by leveraging a diverse range of powerful trademarks. 

Although ITC's sales in the March quarter was around INR 111 billion compared with INR 84 billion in the year-ago quarter, the revenue is not comparable due to the higher incidence of excise duty on cigarettes in the March quarter. 

Even though ITC does not disclose its cigarette sales volume and market share, the sector analyst mentioned before said that ITC's market share remained over 73% as its competitors also increased prices to the same extent as ITC, but ITC's sales volume was impacted by 15-20% in the March quarter.

The sector analyst further said that in the coming months, ITC is likely to raise prices of some brands further to mitigate the tax impact and a large section of consumers, who hitherto were smoking premium products, are likely to shift towards smoking non-premium cigarettes. A similar sentiment was recently echoed by cigarette dealers and distributors. 

ITC said a punitive and discriminatory taxation and regulatory regime over the years have led to significant operating challenges for the legal cigarette industry in the country. It may be recalled that relative stability in taxation over the past few years, coupled with deterrent enforcement actions, checked the growth of illicit trade and enabled the legal cigarette industry to recover lost volumes, ITC said. This also resulted in the concomitant increase in demand for Indian tobacco and bolstering revenue to the exchequer from the tobacco sector. 

However, increase in GST rate from 28% of transaction value to 40% of retail sale price along with a steep hike in excise duties Feb. 1 onwards have resulted in an unprecedented increase in tax incidence on cigarettes. 

The extremely stringent regulations along with the discriminatory and steep taxation on cigarettes have had numerous negative, albeit unintended repercussions, ITC said. These include rapid growth in illicit cigarette volumes, resulting in sub-optimisation of the revenue potential of the tobacco sector and significant loss to the exchequer, large component of tobacco consumption remaining outside the tax net and persistently adverse impact on the livelihood of tobacco farmers.

SEGMENT PERFORMANCE

ITC's sales from the non-cigarettes fast moving consumer goods business rose around 15% on year to over INR 63 billion in the March quarter and gross profit from this business rose nearly 51% on year to INR 5.21 billion. 

ITC said that the growth in the non-cigarette consumer goods business was driven by broad-based scale up of operations across categories, notwithstanding heightened competitive intensity. The consumer products division sustained competitive levels of trade and marketing investments to support growth and market standing. 

ITC launched nearly 100 new consumer goods products during the year ended March, anchored on the vectors of health and nutrition, hygiene, protection and care, convenience and on-the-go and indulgence, across target markets.

The EBITDA margin from the consumer goods business, ex-cigarettes, increased to 10.6% in the March quarter as against 8.9% in the year-ago quarter. 

The agricultural sales and trading business witnessed a significant disruption during the year, triggered by sweeping tariff measures imposed by the US, and climate-related supply uncertainties in key producing regions. Supply chain disruptions and logistical challenges, following the West Asia war towards the end of the financial year, led to deferrals of call-offs by certain customers, ITC said. On the domestic front, the government imposed stock limit and export restrictions on key agri-commodities to ensure food security, which limited the opportunities for the trading and export business.

As a result, ITC's sales from the agricultural business declined around 16% on year to around INR 31 billion in the March quarter and the gross profit from this business division fell around 30% on year to around INR 2 billion.

Revenue from its paper and packaging business increased marginally by less than 2% on year to a little over INR 22 billion as cheap imports from China and Indonesia, often below cash-cost levels, as well as weak demand conditions, resulted in subdued realisations. 

The cumulative impact of subdued realisations from the paper and packaging business and a sharp surge in wood costs exerted pressure on margins in the paper and packaging business. ITC partially mitigated these challenges by leveraging the structural strengths of its integrated model, accelerating value-led customer engagement, deepening digital-led productivity and quality interventions, and scaling up the portfolio of sustainable plastic-substitution solutions.

NEW 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.

During FY26, the fresh foods division strengthened its presence across the cuisine segments and markets in which it operates, supported by improving consumer traction. With sustained focus on food quality and service standards, the fresh foods busines expanded its operating footprint to 70 cloud kitchens and is now being progressively introduced across India. Gross merchandise value doubled to over INR 2 billion in FY26 for this division. 

FY26 PERFORMANCE 

During the year ended March, ITC delivered a resilient performance during the year amid a challenging macroeconomic and operating environment, the company said in its statement. Its revenue during the year increased over 10% on year to over INR 816 billion, but the net profit fell over 42% on year to around INR 203 billion. 

However, the EBITDA during FY26 increased nearly 5% on year to a little over INR 252 billion. In the second half of the year, gross revenue and EBITDA grew by 12.2% and 7.5%, respectively.

The company has declared a final dividend of INR 8 per share with the record date being May 27. 

OUTLOOK

ITC said India's macroeconomic outlook remains relatively resilient with real GDP projected to grow by 6.9% in FY27 as per RBI estimates. The economy is well poised for rapid growth over the medium term, supported by structural drivers such as a favourable demographic profile, rising affluence, rapid urbanisation, accelerated digital adoption and improved infrastructure and connectivity. 

Bilateral trade deals negotiated recently with the US, the UK, the EU, New Zealand and Oman augur well for India's overall growth outlook and may open new avenues for agricultural commodities trading for ITC. 

However, the ongoing West Asia war has heightened the concern around India's energy security and imported inflation. A prolonged disruption, coupled with emerging El Nio conditions that could weaken monsoons and intensify heatwaves, poses risks to growth and inflation. These factors may also have second-order impacts on consumer sentiment and demand conditions and remain key monitorable in the near term, ITC said.

For its cigarettes business, FY27 presents an extremely challenging operating environment in view of the unprecedented increase in taxation that will undoubtedly test the resilience and adaptability of companies such as ITC. 

Notwithstanding such challenges, ITC said it remains confident of fortifying its market standing in the legal cigarette industry leveraging its robust product portfolio of differentiated and premium offerings, strong innovation pipeline, world-class quality, integrated seed-to-smoke value chain, cutting-edge manufacturing and digital technologies and best-in-class in-market execution capabilities.

ITC's agricultural business is also likely to remain under pressure in India as domestic demand for leaf tobacco in the near term is expected to be subdued, weighing on the prospects of the key stakeholders of Indian tobacco industry. The ongoing conflict in West Asia, together with oversupply in international markets, further exacerbates the already challenging operating environment. 

Thursday, shares of ITC closed slightly higher at INR 308.05 on the National Stock Exchange. End

Edited by Akul Nishant Akhoury

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