Prabhudas Lilladher has lowered its earnings expectations for ITC after the government announced a steep rise in cigarette excise duty.
What the new tax means
The excise duty hike is expected to push cigarette prices up by 23% to 50%. Higher prices are likely to reduce the volume of cigarettes sold by about 12.5% in the fiscal year 2027.
Impact on ITC’s profitability
Even though lower leaf‑tobacco costs and some price increases could help margins, the overall profit picture is weaker in the medium term. The total tax burden on cigarettes will rise from roughly 50% to 61%, still below the World Health Organization’s recommended 75%.
Revised earnings outlook
- EPS estimates cut by 3.2% for FY24, 11.2% for FY25, and 11.9% for FY26.
- Expected compound annual growth rate (CAGR) for EPS over FY26‑28 reduced to 4.5%.
- Target price lowered to ₹348 from the previous ₹528.
Rating change
Based on the new projections, the rating on ITC has been changed from “Buy” to “Reduce”.
Why it matters to you
If you own ITC shares or are thinking of buying, the higher tax could bite into earnings for a few years. Keep an eye on how the company manages cost pressures and whether it can offset the sales decline with growth in its other businesses like FMCG and paperboard.
Remember, this is just my take on the situation, not a prediction. Do your own research or talk to a qualified advisor before making any investment decisions.