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Companies

India's ITC beats profit estimates on lower taxes and rising cigarette demand

Tobacco business grows 6% in second quarter

MUMBAI (NewsRise) -- ITC, India's largest cigarette maker, reported a better-than-expected 36% jump in second-quarter net profit, helped by lower tax expenses and strong growth in tobacco business.

ITC, also known for its Maurya luxury hotel chain, has been driving its growth on the margins of its cigarette business, which is rebounding from a prolonged period of tax increases that spurred illegal trade, and a regulatory clampdown on smoking. Prime Minister Narendra Modi's government cut corporate taxes by eight percentage points to 22% in September, a move that has triggered a sharp rebound in the profitability of domestic companies.

ITC's consolidated net income for the quarter ended in March rose 40.23 billion rupees ($567 million). Analysts were expecting the company to report a net income of 35.73 billion rupees, according to Refinitiv data. Revenue from operations rose 5.3% to 118.71 billion rupees, while tax expenses plunged 44% to 7.85 billion rupees in the quarter.

Sales from cigarette business, which accounts for more than three-fourths of ITC's operating earnings, rose 6% to 53.27 billion rupees. Operating earnings at the unit grew 7.4%. Cigarette sales volume is estimated to have grown 4%, ICICI Direct Research said in a note.

ITC has been facing pressure on its cigarette sales volumes since the first quarter, especially in rural markets, according to analysts. However, the reduction in corporate taxes is expected to enable the company to drive cigarette sales in rural markets through better promotional offers.

ITC's cigarette segment has been delivering positive volume growth over the past six quarters, ICICI Direct said. It expects the company to continue to deliver its volume growth momentum this fiscal year, with a 4% expansion.

Sales in the consumer business, which includes branded packaged goods, apparels, and personal care products, rose 4.1% in the quarter. Indian consumer companies have been witnessing a moderation in top-line growth, hurt by tapering rural growth in a slowing domestic economy.

India's economy grew at the slowest pace in five years in April-June as banks tightened credit in the face of ballooning bad debt. The slowdown has been aggravated by a slump in rural spending amid a delay in payments from government welfare schemes and floods in different parts of the country, say analysts. Rural India accounts for about 40% of India's consumer spending.

Earlier this month, Hindustan Unilever, India's largest consumer goods company, warned that the near-term outlook for demand, especially in rural India, remains challenging.

Revenue from ITC's hotels business surged more than 17%, while that of the agricultural business barely grew 19%.

Shares of ITC lost 0.8% in Mumbai trading on Thursday before the earnings were released, while the benchmark S&P BSE Sensex edged 0.1% lower.

--Dhanya Ann Thoppil

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