ITC’s shares tumbled 24% after the government announced a big tax hike on cigarettes.
What the new tax means
From Feb 1, 2026, excise duty on tobacco will rise sharply and GST on cigarettes will go from 28% to 40%. Combined, the tax on a pack could rise by 40‑50%, the biggest increase in almost 20 years.
How it could affect prices and demand
- Analysts say ITC may need to raise cigarette prices by at least 25% to keep its profit margins.
- A higher price could push some buyers to cheaper or illegal products, cutting legal sales volume.
- Brokerages expect a possible 15% drop in cigarette sales by FY27.
Broker reactions
Several broker houses downgraded ITC:
- Motilal Oswal moved its rating from “Buy” to “Neutral” and cut the target price to ₹400, noting the tax could force a 25% price hike.
- Nomura changed its rating to “Reduce” and lowered its target to ₹340, warning of a 30% price rise and a 15% fall in sales.
- Nuvama Institutional Equities shifted to “Hold”, trimmed its target to ₹415 and expects both volume and earnings to drop in the next fiscal year.
What investors should watch
Key points to monitor:
- The timing and size of any price increases ITC implements.
- Changes in legal cigarette sales versus the illicit market.
- ITC’s overall earnings, especially its other businesses that might offset cigarette losses.
Bottom line
The steep tax hike creates a clear challenge for ITC’s cigarette business, and brokerages are now more cautious. Investors should keep an eye on how the company manages pricing and whether its other segments can cushion the hit.
Remember, this is my view, not a prediction. Do your own research before making any investment decisions.