ITC’s shares dropped more than 5% on Jan 2, hitting a new 52‑week low after the government announced higher excise duties on cigarettes starting Feb 1.
What caused the drop?
The Parliament passed a bill that raises the excise duty on cigarettes, adding a charge of Rs 2,050–8,500 per 1,000 sticks depending on length. This sits on top of the existing 40% GST.
How big is the tax increase?
- Overall tax on cigarettes in India is about 53% of the retail price, below the 75% WHO benchmark.
- For 75‑85 mm cigarettes, the new duty adds roughly 22‑28% to the cost.
- Longer sticks (over 75 mm) make up about 16% of ITC’s sales and could see price hikes of Rs 2‑3 per stick.
What analysts are saying
JPMorgan
- Downgraded ITC to “Neutral”.
- New target price: Rs 375 (down from Rs 475).
- Warns the tax could push consumers to cheaper brands or illegal cigarettes.
Nuvama
- Changed rating to “Hold”.
- Target price: Rs 415, implying about 14% upside.
- Notes a possible 20% price hike and 30% overall tax rise, cutting EBITDA forecasts.
UBS
- Kept “Buy” rating but lowered target to Rs 430 (from Rs 490).
- Seeing limited earnings growth and more uncertainty.
Jefferies & Motilal Oswal
- Both cut target prices to around Rs 400.
- Suggest ITC may need roughly 40% price hikes to absorb the tax, which could hurt sales volume.
What this means for investors
ITC’s stock has fallen about 13% in the last five days and over 15% in six months. Higher taxes may force the company to raise cigarette prices, but that could reduce demand and hurt earnings. Keep an eye on how the company adjusts its pricing and whether it can maintain profit margins.
Disclaimer
Remember, this is perspective, not a prediction. Do your own research and consider your risk tolerance before making any investment decisions.