ITC cigarette sales fall

ITC Ltd, which supplies four out of every five cigarettes sold in India, was dealt a new blow after quarterly tobacco product sales unexpectedly dropped, sending its shares lower even as net profit increased by a fifth.

The company, 30.8 percent owned by British American Tobacco, generates about half its revenue from cigarettes. Government curbs on tobacco use pose a challenge to sales.

Cigarette sales volumes fell about 2.5-3 percent from the previous quarter, according to three analysts briefed by the company on its fiscal first-quarter results. They had expected flat volumes.

"The crucial part for ITC would be to further ramp up its efforts towards reducing its dependence on the cigarette business," said G. Chokkalingam, executive director and chief investment officer at Centrum Wealth Management, which recently sold some of its ITC shares.

Uttar Pradesh, the country's most populous state, in early July increased the value-added tax on cigarettes to 50 percent from 17.5 percent. The northern state contributes 5 percent of the company's sales by value.

"After Uttar Pradesh a lot of states will look at hiking the taxes on tobacco products because of its health hazards," said Chokkalingam.