ITC’s share price slipped more than 5% on Friday, reaching a 52‑week low of ₹345.35 after the government announced a fresh excise duty on cigarettes that starts on February 1.
What the new tax means
The finance ministry said cigarettes will now be charged an excise duty of ₹2,050 to ₹8,500 per 1,000 sticks, based on the length of the cigarette. This tax is added on top of the existing 40% GST.
Impact on ITC’s costs
Analysts estimate that the duty will raise the cost of making 75‑85 mm cigarettes by about 22%‑28%. Those longer sticks represent roughly 16% of ITC’s cigarette sales, so the company may need to raise prices by ₹2‑₹3 per stick to keep margins healthy.
Recent stock performance
- Down 5% on the day, hitting a 52‑week low.
- Down 10% the previous session.
- Down 25% over the past year.
- Down 16% in the last six months.
- Down 14% in the last three months.
- Down 13% in the last month.
Analyst reactions
ICICI Securities, which had recommended a long position in ITC futures, told investors to close their trades because the stop‑loss level was hit. Religare warned that the tax could squeeze margins and volumes in the short term, especially for the premium‑length cigarettes.
Why the impact might be limited
Even though the tax raises costs, cigarette demand in India has historically been price‑inelastic, meaning consumers tend to keep buying despite price rises. ITC can also offset pressure by:
- Increasing prices gradually.
- Shifting the product mix toward lower‑taxed segments.
- Improving efficiency in production.
- Relying on earnings from its non‑cigarette businesses such as FMCG, hotels, and agribusiness.
Investor takeaway
In the near term, the new excise duty may weigh on ITC’s earnings and keep the stock under pressure. Over the medium to long term, the company’s strong pricing power and diversified businesses could help protect profits. Investors should watch how ITC adjusts its pricing and product mix before making new commitments.
Remember, this is just a perspective, not a prediction. Do your own research and consider your risk tolerance before investing.