Stung by a punitive tax on cigarettes, net profit of cigarettes-to-hotel major ITC rose by 3.6 per cent at Rs 2,361 crore in the March quarter, against Rs 2,278 crore in the year-ago period, missing Street expectations by a wide margin. Bloomberg had estimated the net profit to be at Rs 2,521 crore. Excluding expenditure on corporate social responsibilty programmes, net profit grew by 7.8 per cent.

“The muted growth in revenue and profits during the quarter reflects, inter alia, the continuing impact of the steep hike in taxation on cigarettes, sluggish demand conditions in the fast-moving consumer goods (FMCG) sector,” the company said in a statement.

Missing street estimates, cigarettes-to-hotel major ITC reported a net profit growth of 3.6% at Rs 2,361.18 crore in the March quarter, an as compared to Rs 2,278.01 crore last year during the same period.

Net sales for the quarter stood at Rs 9188.25 crore up by 0.4% than Rs 9145.14 crore during the corresponding quarter last fiscal.

The benchmark BSE Sensex today ended marginally lower by 28 points at 27,809.35 as blue-chips witnessed a mixed trend amid concerns over poor quarterly earnings and a diverse closing at other Asian markets.

Of 30 Sensex counters, 14 ended lower and 15 rose, while TCS settled unchanged.

ITC Ltd, India's largest cigarette maker, is in talks with Century Textile and Industries Ltd to buy its paper division in a bid to diversify revenue to non-tobacco businesses, said two sources directly involved in the deal.

In separate transactions, Century's textile division will be merged with Aditya Birla Nuvo Ltd and the cement unit will be merged with UltraTech Cement Ltd , as part of the company's restructuring, the sources said.

The top ten stock picks of India's equity mutual fund managers underwent a sharp re-shuffle in 2014-15. MF managers not only changed their preferences for stocks but also ousted three heavyweight counters from their top holdings during the year, reducing concentration of equity assets in these stocks by around 440 basis points.

Sectoral giants - FMCG major ITC, largest software company Tata Consultancy Services (TCS) and oil explorer Oil and Natural Gas Corporation (ONGC) - were all out from the top picks.

Mumbai: India’s smokers are favouring cheaper options such as chewing and leaf-wrapped tobacco over cigarettes, as rising taxes prompt ITC Ltd to sell shorter sticks with lower duties.

“Earlier on, as the taxation was increased, the cigarette industry showed resilience. Now, it has suddenly begun to drop,” Yogesh Deveshwar, chairman of Asia’s third-biggest listed tobacco-seller ITC, said in an interview with Bloomberg TV India. “The tobacco consumption basket continues to grow, whereas the cigarette share continues to shrink.”

Markets are trading at day’s high led by significant buying among index heavyweight HDFC and ITC.

By 10:43AM, the 30-share Sensex was higher by 301 points at 27,760 and the Nifty gained 81 points at 8,423.

After acquiring Johnson & Johnson’s brands Savlon and Shower-to-Shower, ITC is working on plans to expand its presence in the personal care segment by leveraging its distribution infrastructure.

With the acquisition of Savlon, ITC now directly competes with Reckitt Benckiser’s Dettol which has moved from antiseptic liquids into soaps, hand wash and hand sanitisers. ITC is now looking at brand extensions of Savlon (antiseptic liquid) to fight multinational competition in India.

While core competence is a virtue that most investors cherish, diversification is one that can be useful, too. ITC Ltd’s consumer products business could be a case in point as its flagship cigarettes business is suffering from a punishing increase in taxes and harsh regulatory oversight. News of ITC’s plan to set up 20 new factories to make consumer products could be a sign of a bigger push.

Sharp annual price hikes in cigarettes have hurt sales growth, but cigarette margins are protected. In FY15, for example, annualized sales of cigarettes rose by 8.6%, but profit rose by 14.8%. That may seem good, but not for a business where sales have increased at a compounded rate of 15.4% between FY09-14 and profit by 18.7%. Though ITC’s segment profit margin is still an eye watering 67.4%, it is not pulling as much weight as it did earlier.

After a gloomy period, ITC’s pricing power finally lit up the stock, as the company seems to have decided to raise the buck from customers.

The scrip closed on Thursday at Rs 346.25, up by 2.35 per cent. According to market sources, the company has decided to undertake a price increase of 15 per cent across cigarettes of various lengths.

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