ITC's Q2 profit rises, revenue falls 1.4 percent

While the company managed Rs 2, 431 crore net profit as opposed to Rs 2, 425 a year ago, the revenue decreased by 1.4 percent to come down to Rs 8, 904 crore from Rs 9,024 within the same time period.

While the hotel segment boosted ITC's economy, cigarettes and paper acted as impediments in the growth due to the sluggish market demands the various clauses imposed on the sale of legal cigarettes by the governments.

In the FMCG segment, 'Ashirvaad' atta, sustained its stronghold in the market, ably supported by other snacks items such as 'Bingo' potato chips.

The instant noodles segment took a hit due to the ongoing 'Maagi' fiasco, while the confectionery segment 'Mom's Magic' continued its successful run in the market.

In its official release the company wrote, "The operating environment for the legal cigarette industry in India was rendered even more challenging with two rounds of sharp increase in Excise Duty – in July 2014 and February 2015. This includes a cumulative increase of 115% on filter cigarettes of ‘length not exceeding 65 mm’, which has widened the price differential between legal and illegal cigarettes. Over the last 3 ½ years, the incidence of Excise Duty and VAT on cigarettes, at a per unit level, has gone up cumulatively by 98% and 124% respectively which is exerting severe pressure on legal industry volumes even as illegal trade grows unabated."

"High incidence of taxation and a discriminatory regulatory regime on cigarettes in India have over the years led to a significant shift in tobacco consumption to lightly taxed or tax-evaded tobacco products like bidi, khaini, chewing tobacco, gutkha and illegal cigarettes which presently constitute over 89% of total tobacco consumption in the country. Thus, the share of legal cigarettes in overall tobacco consumption has progressively declined from 21% in 1981-82 to 11% in 2014-15 even as overall tobacco consumption has increased in India. Besides adversely impacting the performance of the legal cigarette industry, this has led to sub-optimisation of the revenue potential from the tobacco sector."