A tax-driven profit fall, not a demand collapse

The profit decline is concentrated, not broad-based. ITC’s cigarette business bore the brunt: segment profit fell 27.2% to Rs 3,813 crore, from Rs 5,241 crore, while net cigarette revenue fell 21%. The company attributed the weakness to an unprecedented increase in cigarette taxes, which continued to put pressure on legal-industry volumes. The tax increases, effective 1 February 2026, included a hike in GST on cigarettes from 28% of transaction value to 40% of retail sale price — and the higher taxes also inflate reported revenue, which is why the 43.9% revenue jump should not be read as equivalent sales-volume growth.

Against that drag, the rest of the group held up. ITC said in its earnings statement that it saw “robust growth across all Non-Cigarette Business segments.” Its FMCG-others business grew revenue 19% year-on-year, and paperboards, paper and packaging revenue surged 35.9%. Consolidated net revenue on the comparable basis used by ET Markets rose 5% to Rs 20,454 crore, and consolidated EBITDA declined 15.7% to Rs 5,645 crore — the operating-profit pressure is real, but it is not a group-wide demand failure.

The second quarter in a row

This is the second consecutive quarter in which higher cigarette taxes have weighed on ITC’s bottom line. That persistence is the story: a single quarter can be written off as a tax shock, but two quarters make it a structural margin reset for the cigarette business until volumes or pricing adjust. The offset — FMCG, agri and paper growth — is now doing more than supporting the narrative; it is carrying the growth case for the stock.

C-Suite India take

ITC’s quarter is a lesson in reading past the headline. Revenue up 44% and profit down 18% looks contradictory until the tax line is understood: the same tax hike that inflates gross revenue crushes cigarette profitability. For leadership watchers, the interesting number is not the profit fall but the non-cigarette growth — that is the diversification story ITC has spent a decade building, and this quarter it is the only thing standing between a bad quarter and a worse one.