ITC Second-Quarter Profit Climbs 21% as Cigarette Sales Rise

ITC Ltd., Asia’s second-largest cigarette maker, reported an increase in second-quarter profit that beat analysts’ estimates as sales of cigarettes and other consumer products rose.

Net income gained 21 percent to 15.1 billion rupees ($303 million) in the three months ended Sept. 30, from 12.5 billion rupees a year earlier, the Kolkata, India-based company said today. Analysts projected 14.7 billion rupees, based on the median of 26 estimates compiled by Bloomberg. Sales climbed 18 percent to 59.7 billion rupees.

“Because they are market leaders, they have pricing power, so their earnings in cigarettes are very steady,” Varun Lohchab, a Mumbai-based analyst at Religare Securities Ltd. with a “buy” rating on ITC, said in a telephone interview. “The other businesses have also been growing well.”

ITC, India’s largest cigarette seller, advanced 1.4 percent to 206.95 rupees at the 3:30 p.m. close in Mumbai. India’s benchmark Sensitive index rose 0.9 percent. The stock has gained 22 percent in the past 12 months, making it the second-best performer on India’s 10-member BSE Fast Moving Consumer Goods Index, trailing Nestle India Ltd.

Second-quarter cigarette revenue from the maker of the Benson & Hedges and Wills brands increased 16 percent to 29.7 billion rupees. Sales of other products such as soaps, shampoos and packaged foods rose 27 percent to 13.4 billion rupees.

Different Tax Rates

ITC raised prices of some cigarettes across India in September to counter a tax increase in some states, Nazeeb Arif, a company spokesman, said on Oct. 14.

The levy of different value-added tax rates by various state governments has led to illegal trade in cigarettes, the company said in an e-mailed statement today. The government needs to take steps to curb unlawful activity, according to the statement.

“The differential rate of VAT on cigarettes across the states only encourages unscrupulous tax arbitrage,” the company said. “The effective and sustainable solution lies in eliminating the tax arbitrage that encourages these activities by ensuring harmonious and moderate tax rates.”

Japan Tobacco Inc. is Asia’s largest cigarette maker by revenue.