ITC Navigates Tax Storm with New Products and Cost Control

ITC is experiencing one of its most difficult quarters in recent years, primarily due to a substantial increase in cigarette taxation. This tax hike has squeezed the profitability of its largest business segment, prompting the company to intensify efforts in new product launches, portfolio adjustments, and cost control measures to safeguard its consumer base. Concurrently, its foods, personal care, and paperboard businesses have shown notable improvement, helping to offset the challenges.

Standalone cigarette earnings saw a 35% year-on-year decline in the June quarter following a sharp rise in excise duty on tobacco products. To avoid pushing consumers towards the illicit market, ITC opted for a phased price increase rather than an immediate full pass-through of the tax. This strategy has helped cigarette volumes hold up better than feared, with an estimated 5% to high-single-digit decline.

The company responded to the tax disruption by introducing over 30 new products and launching new brands. In contrast, ITC's FMCG business, encompassing foods and personal care, continued its healthy expansion, with standalone FMCG revenue growing 12% year-on-year. Dairy, snacks, and noodles all experienced over 20% growth, while personal care saw mid-teen growth.

ITC's paperboard and packaging business delivered its strongest quarterly performance, with sales up 9% and profit surging by 43%. This success was driven by improved pricing and a government-imposed floor price on imported paperboard. However, the agri trading business underperformed, with sales falling 16% due to trade disruptions linked to the West Asia conflict and a high base from the previous year.