Tobacco firm ITC Ltd, which makes four out of every five cigarettes sold in India, met estimates with a 22 percent rise in quarterly profit as higher sales prices for its smokes protected margins from stagnant volume growth.
The company, India's fourth biggest by market capitalisation, has raised prices by around 15 percent since the start of this year to offset the impact of higher taxes and tighter anti-smoking regulations in several Indian states.
These taxes and laws have restricted volume growth, which was almost flat with only a 0.3-0.4 percent increase after a decline in the previous quarter, according to three analysts briefed by the company on its quarterly results.
The company's net profit rose to 18.36 billion rupees for the quarter ended September 30, up from 15.1 billion rupees a year earlier.
"The results are good but I am not jumping on this performance ... volume growth is still looking like a struggle," said an analyst with a foreign brokerage who spoke on condition of anonymity.
ITC does not provide details of sales volumes in its earnings statements.
ITC, which is 30.8 percent owned by British American Tobacco PLC , generates about half its revenue from cigarettes.
As Indian anti-smoking laws tighten, that core business is coming under greater pressure, and the firm is stepping up its efforts to move into other product categories.
"They have stepped up their diversification plans recently so that is a positive. They are going in the right direction," said G. Chokkalingam, executive director and chief investment officer at Centrum Wealth Management, who has been buying the stock for the past three months.
"In a few years we expect cigarettes to be a small part of the business," he said.
ITC, which also owns hotels and makes products including soap and shampoo, said net sales from its non-cigarette consumer business grew 26 percent to 17 billion rupees.
Shares in ITC, a staple among fund portfolios which consider it recession-proof, extended gains and rose as much as 2.2 percent after the results, the latest in a recent series of intra-day highs of 298 rupees.
The stock trades at 26.3 times its 12-month forward earnings, compared with peers Hindustan Unilever's 33.1 times, and Godrej Consumer's 24.4 times, according to Thomson Reuters Starmine Smart Estimate.