ITC Net Profit Plummets 27% as Record Tax Burden and West Asia Crisis Bite into Margins

ITC Net Profit Plummets 27% as Record Tax Burden and West Asia Crisis Bite into Margins​

ITC reported a significant decline in its standalone first quarter net profit, which fell by 27% year-on-year. The conglomerate's core business faced intense pressure from unprecedented increases in cigarette taxation and trade disruptions stemming from the West Asia crisis. ITC posted a net profit of ₹3,578.82 crore for the quarter ended June.

Profit Decline Driven by Tax Pressure and Market Headwinds​

While revenue from operations saw a healthy rise of 28% to ₹26,943.23 crore, net revenue experienced a drop of 14%. This performance fell short of market expectations, as analysts had anticipated only a 10-11% decline in both net sales and net profit. ITC’s results were weighed down by the sharp increase in excise duty on cigarettes following the GST compensation cess expiry.

The cigarette segment's profitability suffered heavily due to this burden. The Profit Before Interest and Taxes (PBIT) for the tobacco business plunged 35% year-on-year, settling at Rs 3,341 crore. Despite revenue rising in this division to Rs 15,383 crore from Rs 8,520 crore, margin protection became a critical challenge for the company.

FMCG Segment Provides Crucial Buffer​

The Fast Moving Consumer Goods (FMCG) business provided essential cushioning against the headwinds faced by the tobacco and agri-business segments. FMCG segment revenue rose 12% on-year to ₹6,482 crore. The division saw PBIT increase by 21% to Rs 478 crore.

This growth was supported by significant expansion across various categories. Dairy, snacks, noodles, and frozen snacks all expanded by more than 20%. Personal care products also delivered a mid-teens growth rate during the quarter. ITC noted that consumption remained resilient across both rural and urban markets.

Agri-Business Exports Hit by Geopolitical Turmoil​

The agri-business segment reported a steep decline in revenue, which fell more than 16% to ₹8,082 crore. This downturn was directly linked to trade disruptions arising from the protracted conflict in West Asia, heavily impacting exports. The segment PBIT also fell 18% year-over-year, compounded by lower domestic demand affecting the leaf tobacco business.

The paperboards and paper segment, however, provided a stabilizing force within the portfolio. This division reported a respectable 9% revenue growth, with its segment PBIT rising by 38%.

Broader Economic Risks Loom Over Future Growth​

Management highlighted several critical external risks that could weigh on future growth and inflation. Imported inflation remains a key watch-out for the near term. Furthermore, India is currently experiencing a significant deficit in monsoon and lower kharif sowing levels compared to last year.

ITC added that spatial and temporal variations in the monsoon will continue to be monitored closely. Emerging El Nino conditions, coupled with ongoing West Asia instability, could intensify heatwaves and negatively impact growth and the current account.