Higher taxes and tighter anti-smoking regulations in several states have impacted sales of the company, which makes four out of every five cigarettes sold in India.
Cheaper smokes improved volume growth by 2-3% after a marginal increase of 0.4% in the previous quarter, according to three analysts briefed by the company. ITC does not provide details of sales volumes in its earnings statements.
"The cigarette industry in India continues to be impacted by a discriminatory taxation and regulatory policy framework," the company said in a statement.
"The high incidence of tax on cigarettes has created tax arbitrage opportunities leading to the growth of illegal cigarettes in the country. Consequently, legal industry volumes have come under severe pressure," the statement said.
ITC, which is 30.8% owned by British American Tobacco PLC, generates about half its revenue from cigarettes. The company also owns hotels and makes products including soap and shampoo.
"The non-cigarette business has shown a good jump. This is a good sign because the company has been focusing heavily on diversification," said Naveen Trivedi, an analyst with Karvy Stock Broking Ltd. in Mumbai.