ITC Reports 18.7% Drop in Q2 Net Profit Amid Higher Cigarette Taxes

ITC Limited, the diversified Indian conglomerate known for its cigarette and consumer goods businesses, announced an 18.7 percent year-on-year decline in consolidated net profit for the second quarter of the 2026-27 financial year. The company’s net earnings attributable to owners dropped to ₹4,168.40 crore, down from ₹5,126.11 crore during the same period last year.

The reduction in profit primarily stems from a significant increase in taxes imposed on the cigarette segment, which continues to face regulatory headwinds. Despite this, ITC’s overall consolidated revenues grew by 3.9 percent year-on-year, reaching ₹20,269 crore. These figures slightly exceeded analyst expectations, with Bloomberg consensus forecasts pegging revenues at ₹20,111 crore and net profit at ₹4,136 crore.

On a sequential basis, ITC’s net revenues climbed 6 percent compared to ₹19,114 crore in the previous quarter. However, net profit declined by 5.1 percent quarter-over-quarter, marking the second straight quarter affected by tax hikes on cigarettes.

Earlier this year, effective from February 1, 2026, the government increased the Goods and Services Tax (GST) on cigarettes from 28 percent of transaction value to 40 percent of retail sale price. Alongside this, excise duties saw a steep rise following the removal of the compensation cess. These tax adjustments have made the legal cigarette market less accessible, forcing ITC to adopt a cautious strategy to avoid a sharp volume shift toward illicit products while maintaining its consumer base.

ITC noted that cigarette industry volumes remained under pressure due to these unprecedented tax increases. In response, the company implemented several measures to restructure its product portfolio, aiming to strengthen its market presence and combat the inflow of smuggled international brands.

The cigarette business reported a pre-tax profit of ₹4,044.49 crore during the quarter, representing a 26 percent decline compared to the same quarter last year. Nonetheless, there was a 7.3 percent increase in pre-tax profit compared to the previous quarter’s ₹3,769.11 crore, indicating some sequential improvement.

Meanwhile, ITC’s non-cigarette fast-moving consumer goods (FMCG) segment delivered a robust performance with a 19.1 percent year-on-year revenue growth, reaching ₹7,218.36 crore. This marks a 14-quarter high for FMCG revenue growth, driven by strong demand in biscuits, snacks, noodles, spices, salt, frozen snacks, homecare products, and notebooks, all posting growth rates exceeding 20 percent. Additionally, the dairy and personal wash categories achieved high-teens growth. The company also highlighted vigorous growth in NewGen retail channels and a notable recovery in general trade.

Pre-tax profit for the FMCG segment surged 31.4 percent year-on-year to ₹576.69 crore. This growth reflects ITC’s expanding footprint in consumer staples beyond tobacco, a key part of its diversification strategy.

The agriculture business experienced some challenges linked to geopolitical tensions in West Asia and delays in customer purchase orders. Despite these obstacles, the segment showed resilience, increasing revenue by 12.7 percent to ₹4,550.60 crore and pre-tax profit by 14.3 percent to ₹518.41 crore. ITC is actively pursuing new market development efforts to broaden its geographic reach, alongside strong sales of value-added agricultural products.

The paper division sustained a strong recovery, supported by improved demand and pricing adjustments. Revenue in this segment rose sharply by 35.9 percent year-on-year to ₹3,017.45 crore. Pre-tax profit jumped 50.7 percent to ₹273.32 crore. The company also completed its acquisition of Century Pulp & Paper on August 1, 2026, which is expected to bolster its capacity and market position in the paper sector.

ITC’s overall commentary on the quarter highlighted that the Indian economy remains resilient, fueled by steady domestic demand across both rural and urban areas. However, risks loom from uneven monsoon patterns, low reservoir levels, and the strengthening El Niño phenomenon, which could impact agricultural output and inflation trends.

The company also identified geopolitical uncertainties, climatic challenges, inflationary pressures, and consumer sentiment as key factors to watch in the coming months. These elements will likely influence ITC’s operational environment and strategic decisions moving forward.

As ITC navigates these headwinds, the company continues to balance the disruptive effects of regulatory changes on its tobacco business with promising growth in its FMCG, agriculture, and paper segments. This diversified approach aims to sustain long-term growth despite short-term challenges posed by taxation and external economic factors.