ITC Q1 profit plunges 27% due to record cigarette taxes and West Asia crisis

New Delhi: ITC on Friday reported a 27% fall in standalone first quarter net profit from a year earlier, as record taxation on cigarettes weighed on the conglomerate’s core cash cow and the West Asia crisis hurt its agri-business exports.

The Kolkata-based company posted a net profit of ₹3,578.82 crore for the quarter ended June. Revenue from operations rose 28% from a year earlier to ₹26,943.23 crore.

Gross revenue also grew 28%, but net revenue dropped 14%. ITC said its gross revenue was not comparable with that a year earlier because GST and GST compensation cess on cigarettes were excluded from gross revenue calculation under accounting standards, while excise duty was included. Excise duty on cigarettes was increased sharply from February following the expiry of the GST compensation cess.

The results fell short of market expectations, as analysts were expecting a 10-11% decline in both net sales and net profit.

Ahead of the results announcement, ITC shares closed 1.5% lower at ₹280.95 on the BSE, where the benchmark Sensex gained 0.2%. Analysts said cigarette sales volumes declined 6-7% from a year earlier.

‘Unprecedented Increase’ in Burden
ITC adopted a calibrated approach to price hikes to protect demand, but that weighed on profitability in its largest business.The cigarettes segment’s profit before interest and taxes (PBIT) plunged 35% from a year earlier to Rs 3,341 crore, while revenue jumped to Rs 15,383 crore from Rs 8,520 crore. The company said the revenue figures were not comparable.

ITC has a more than 75% share in India’s legal cigarette market.

The company said it implemented around 30 interventions in the cigarettes business in response to the “unprecedented increase in tax” to balance the interests of all stakeholders. These included staggered price increases to prevent volume migration to illicit trade, along with re-architecting and strengthening its product portfolio, it said, adding: “Several of these interventions are progressing well and have achieved meaningful scale.”

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The FMCG business helped cushion some of the pressure from cigarettes, with segment revenue rising 12% on-year to Rs 6,482 crore and profit before interest and tax increasing 21% to Rs 478 crore. Categories including dairy, snacks, noodles and frozen snacks expanded more than 20%, while personal care products delivered mid-teens growth.

ITC said consumption remained resilient across both rural and urban markets during the quarter, but “imported inflation is a key watch-out in the near term”.

“India is currently experiencing a 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,” ITC said. “A protracted conflict in West Asia, alongside emerging El Nino conditions that may weaken monsoons and intensify heatwaves, could weigh on growth, inflation and the current account,” it added.

In the agri-business segment, revenue declined more than 16% to Rs 8,082 crore as exports were hit by trade disruptions arising from the West Asia conflict. A high base also impacted performance, with segment PBIT falling 18% YoY. The leaf tobacco business was affected by lower domestic demand as well. The paperboards and paper segment reported 9% revenue growth, while the segment’s PBIT rose 38%.