New Delhi: ITC Ltd on Friday reported second-quarter earnings that fell short of expectations as it sold fewer cigarettes and demand for packaged consumer goods remained tepid.

Net profit rose just 0.25% to 2,431.25 crore in the quarter ended 30 September from 2,425.16 crore a year ago.

Revenue fell 1.34% to 8,904.23 crore from 9,023.74 crore.

The Kolkata-based company with interests in consumer packaged goods, cigarettes and hospitality had been expected to post a net profit of 2,600 crore and sales of 9,350 crore, according to analyst surveys by Bloomberg.

ITC shares tumbled 4.3% on the BSE, the most since 3 June, at the close of trading on Friday, while the benchmark Sensex fell 0.7%.

“The company’s performance during the quarter remained subdued, reflecting the unprecedented pressure on legal cigarette industry volumes, lack of trading opportunities in agri-commodities and the sluggish demand environment prevailing in the fast moving consumer goods (FMCG) industry coupled with prolonged disruption in the instant noodles category due to regulatory challenges," ITC said in a statement.

Even so, price increases helped the company earn 4,317.18 crore from cigarette sales, a 1.5% increase over the year-earlier period.

Revenue from the agri-commodities segment dropped 11.6% to 1,843.74 crore during the quarter from a year ago. Revenue from the paper board, paper and packaging business dropped marginally to 1,254.14 crore in the quarter from 1,284.07 crore a year earlier.

“Reduction of import duties under various free trade agreements, especially with Asean (Association of South-East Asian Nations), which became effective from 1 January 2014, weighed on the performance of the domestic paper and paper board industry," ITC said in a statement.

“Cheap imports from China also adversely impacted the domestic industry. Consequently, segment revenue and profit remained subdued during the quarter," the statement said.

Revenue from the packaged consumer goods business grew 7.1%, backed by 10% revenue growth in the instant noodles business, ITC said. Revenue from the hotels business grew 10.9% during the quarter.

ITC increased its non-cigarette product portfolio by launching Farmlite premium health cookies, Delishus gourmet cookies, Marie Light biscuits and GumOn chewing gum.

According to ITC, the “punitive taxation regime" on legal cigarettes in India was worsened by two sharp increases in excise duty—in July 2014 and February 2015.

“ITC numbers are pretty much driven by cigarettes business and cigarette revenues are just up by around 1.5% after taking price hikes in the range of 20-25%," said Naveen Kulkarni, co-head of research, Phillip Capital, in a discussion on CNBC-TV18.

“So, from that perspective, the volume de-growth has been quite severe in the quarter. So, that is the primary reasons why the numbers are not looking that encouraging," he added.

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