ITC flags illicit trade pressure on cigarettes; digital-first businesses grow over 70%

ITC Ltd on Monday flagged mounting concerns over illicit cigarette trade amid pressure on legal industry volumes following the increase in taxes.

Meanwhile, the company's digital-first and organic FMCG portfolio continued to clock strong growth, expanding over 70% year-on-year in the second quarter of FY27.

The company's Q2 performance reflects contrasting trends across its businesses, with its traditional cigarette business facing tax-related challenges, while newer consumer-facing businesses such as digital-first brands and fresh foods continued to expand.


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Cigarette business faces rising illicit trade challenge

Legal cigarette industry volumes remained under pressure following the unprecedented increase in taxes, ITC said.

ITC said it was responding to market conditions through portfolio restructuring, the introduction of new variants and the development of international trademarks. The increase in illicit trade, according to ITC, remains a significant concern for the legal cigarette industry.

It highlighted a sharp increase in seizures of smuggled cigarette consignments by enforcement agencies across the country, signalling growing exploitation by unscrupulous players and anti-social elements of the widening tax arbitrage opportunity in the Indian market.

Digital-first and organic portfolio grows over 70%

ITC's digital-first and organic portfolio, which includes Yoga Bar, Prasuma, Mother Sparsh and 24 Mantra, grew over 70% year-on-year during the quarter. The portfolio's annual revenue run rate crossed Rs 1,800 crore.

The businesses span categories such as health foods, fresh foods, baby care and organic products, giving ITC a presence across a range of emerging consumer segments.

Also read: Low-sugar fizz, high-cost squeeze: Varun Beverages battles margin pressure

Fresh food business expands

ITC's fresh food business recorded a 53% year-on-year increase in gross merchandise value (GMV), with its annual revenue run rate crossing Rs 320 crore.

The company's cloud kitchen network expanded to over 80 kitchens across five cities during the quarter, with seven new kitchens added in the secind quarter.

West Asia disruptions affect agri exports

ITC said disruptions in West Asia, delayed call-offs, shipping constraints and higher freight costs affected its agri exports during the quarter.

However, exports of value-added agri products, spices, fruits and vegetables, and leaf tobacco performed well. The company said it was pursuing opportunities in new geographies to address the challenges in its export markets.