ITC’s share price slid 5% on Jan 2, hitting a fresh 52‑week low, after the government announced a hefty new excise duty on cigarettes that will start in February.
Why the shares fell
The new tax adds to the existing 40% GST, raising the overall cost of a pack by about 22‑28% for most cigarettes. Higher prices are expected to cut demand, especially for premium “king‑size” sticks that make up around 16% of ITC’s cigarette volume.
Details of the new excise duty
The finance ministry said the duty will be Rs 2,050‑8,500 per 1,000 sticks, depending on the length of the cigarette. For 75‑85 mm sticks the increase translates to roughly a Rs 2‑3 rise per stick.
Brokerage reactions
- Emkay Global Financial Services & Prabhudas Lilladher: downgraded ITC to “Reduce”, cutting target prices by 26‑34%.
- JPMorgan: lowered rating to “Neutral”, target price down 21% to Rs 375, citing the tax hike and possible shift to cheaper or illicit cigarettes.
- Nuvama: moved to “Hold”, target Rs 415, noting a potential >20% price hike and cutting FY27‑28 EBITDA forecasts by 7%.
- UBS: kept “Buy” but reduced target to Rs 430, warning that earnings growth outlook is weaker.
- Jefferies & Motilal Oswal: both cut targets to Rs 400, saying ITC may need a 40% price increase to offset the tax, which could hurt volumes.
- JM Financial: said the duty is higher than expected and could hurt volumes, margins and raise illicit‑trade concerns.
What it could mean for investors
Analysts expect ITC to try passing most of the tax onto consumers, which could push cigarette prices up by 25‑35%. Higher prices may lead some smokers to switch to cheaper brands or illegal products, hurting ITC’s sales volume and earnings growth.
If the company cannot fully offset the tax, its profit per cigarette could fall, putting pressure on the stock’s upside for the next 6‑9 months.
Recent stock performance
In the past five days the share has dropped more than 13%, over 15% in the last six months, and about 28% over the past year. However, it has still risen roughly 64% over the last five years.
Disclaimer
Remember, this is perspective, not a prediction. Do your own research and consider your risk tolerance before making any investment decisions.