By Susan Taylor

OTTAWA (Reuters) - Fourth-quarter profit at Rothmans Inc (ROC.TO: Quote, Profile, Research) grew 17 percent, Canada's No 2 cigarette maker said on Friday, as price increases more than offset pressure from a growing trade in contraband tobacco.

Increased competition to sell low-priced cigarettes and declining volumes posed further difficulties, but Rothmans said it is well positioned financially to withstand market pressures thanks to C$234.9 million in cash reserves.

Known for its Craven A, Rothmans and Benson & Hedges brands, the company said it earned C$21 million ($21 million), or 31 Canadian cents per share, in the period ended March 31.

That is up from C$18 million, or 26 Canadian cents per share, in the same period last year and betters analyst expectation for a profit of 30 Canadian cents a share.

Revenue increased 4.8 percent to C$145.7 million.

Toronto-based Rothmans, Canada's only publicly traded cigarette maker, said rising sales of lower-priced cigarettes lifted results, despite weakness in premium market sales.

Rothmans Benson & Hedges Inc., which is a 60 percent co-owned unit, shipped 2.3 billion cigarettes into the domestic market in the period, down 2.6 percent from last year.

Growing contraband trade remains a threat to the sector, management said on a conference call, adding that they are encouraged by recent government plans to combat the problem.