ITC Profit Jumps Nearly 4x In January-March On Hotel Demerger Gains

ITC Ltd. reported a blockbuster net profit for the March quarter, thanks to a one-time gain from spinning off its hotels business. But beyond the headline number, the story was more subdued—with modest growth in its core operations and pressure building in key segments like FMCG and paper.

The conglomerate's consolidated net profit soared nearly four times on year to ₹195.6 billion. The surge was largely due to a one-off profit of ₹146.9 billion from the demerger of its hotels division into ITC Hotels Ltd., which became effective on January 1. With this move, ITC now holds a 39.9% stake in the standalone hotel entity, treating it as an associate company on its books.

Stripping out the impact of the demerger, the company’s net profit from continuing operations stood at ₹48.7 billion, up just 1% from a year earlier and slightly below Street expectations. Revenue, however, came in strong at ₹184.9 billion—up 9.4% and ahead of estimates.

Despite years of diversification, cigarettes remained ITC’s cash cow. The segment accounted for 46% of quarterly revenue and nearly 80% of pre-tax profits. Revenue from cigarettes rose 6% to ₹84 billion, while pre-tax profit climbed 4% to ₹51.2 billion. The company credited its performance to premium offerings, a strategic product mix, and targeted interventions to counter illicit trade.

The story was less upbeat in the non-cigarette FMCG business. Although revenue grew 3.7% to ₹54.9 billion, pre-tax profit dropped a sharp 28% to ₹3.4 billion. Inflation in raw materials—especially edible oils, wheat, and cocoa—hit margins hard. Products like packaged flour, frozen snacks, and incense sticks helped keep the topline moving, but pricing pressure and competition from local brands in categories like notebooks weighed on profits.

ITC’s agricultural business posted one of the strongest performances of the quarter. Revenue rose nearly 18% to ₹36.5 billion, while profit jumped 26% to ₹2.6 billion. The segment benefited from higher tobacco leaf prices and stronger exports of products like coffee, spices, and rice. Exports of nicotine and its derivatives also began to pick up, with volumes expected to scale this year.

But the paper, paperboard, and packaging division struggled. Revenue rose 5.5% to ₹21.9 billion, but profits slumped more than 31% to just over ₹2 billion. ITC blamed rising wood costs and supply disruptions due to cyclones, as well as increased competition from low-cost Chinese imports.

For the full year ended March, ITC reported a 10.3% rise in revenue to ₹742.4 billion. Net profit surged 72.3% to ₹352.0 billion, although continuing business profit rose a modest 0.9% to ₹200.9 billion. The company declared a final dividend of ₹7.85 per share.

Looking ahead, ITC struck a cautiously optimistic tone. It expects India’s GDP to grow between 6.2% and 6.5% in 2025-26, supported by easing inflation, a good monsoon, and tax cuts announced in the Budget. The company believes consumption will gradually pick up, particularly in rural markets, which have begun showing signs of recovery.

Still, it acknowledged that demand conditions remain uneven. Urban spending stayed weak through 2024-25, dragged down by inflation and stagnant wages. Volume growth in India’s consumer goods sector slowed to 5.6% from 10.8% in the previous year.

In many ways, ITC’s March quarter was a tale of two stories: a balance sheet bolstered by the hotels spin-off and strong agri exports, versus continued margin pressure in core consumer businesses. For now, cigarettes continue to bankroll the diversification—but how long that lasts may depend on how quickly its other engines regain momentum.