ITC Q2 net profit falls 20% as high taxes keep margins in check

Kolkata: ITC reported a 20% year-on-year (YoY) decline in standalone net profit to ₹4,137.1 crore for the September quarter, despite a 45% increase in revenue from operations to ₹28,317.7 crore, as an unprecedented increase in cigarette taxation weighed on profitability. Robust growth across its non-cigarette businesses, coupled with price hikes in the cigarette business following the tax increase, drove revenue growth. The non-cigarette fast-moving consumer goods business recorded its highest revenue growth in 14 quarters.

However, ITC absorbed part of the cigarette price increase to protect consumer demand and shift of sales to illegal or tax-evaded products, putting pressure on margins in its largest business and overall balance sheet.

The results were announced after market hours on Monday. ITC shares closed 0.15% higher at ₹266 apiece on the BSE, underperforming the benchmark Sensex, which gained 1.66%. In its earnings statement, ITC said the operating environment was marked by "heightened uncertainty amidst renewed geopolitical tensions and trade disruptions". Crude oil and crude-linked input prices remained elevated; supply chain disruptions and higher freight costs added to cost pressures.

Read more: Explained: Why gold investors should tone down expectations as yellow metal plunges to a 1-year low

Global inflationary pressures also intensified amid higher energy and food prices, elevated sovereign bond yields and tighter financial conditions. In India, headline inflation rose on a broad-based increase across food, fuel and core components, the company said.

ITC said geopolitical developments, climatic conditions, inflationary headwinds and consumer sentiment would remain key monitorable, even as demand in both rural and urban markets remained resilient.

The cigarette business reported a 78% YoY increase in segment revenue to ₹15,536.1 crore in the September quarter. However, segment profit before interest and tax (PBIT) fell 27% to ₹3,813.5 crore, reflecting the impact of higher taxation and the company's calibrated pricing response.

Read more: SBI Q2 Results Preview: PAT may rise up to 25% YoY; NII, margins, deposit growth in focus

The non-cigarette FMCG business continued to deliver strong growth, with segment revenue rising 16% YoY to ₹6,967.2 crore and segment PBIT increasing 28% to ₹558.3 crore. Biscuits, snacks, noodles, spices, salt, frozen snacks, home care and notebooks grew by more than 20%, while dairy and personal wash products recorded high-teen growth. Ebitda margin in the business expanded by more than 50 basis points yoy. ITC's agri-business revenue grew 12%, driven by value-added products such as spices, fruits and vegetables, as well as leaf tobacco exports while segment PBIT improved by 11%.