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Informist, Friday, Jan. 2, 2026

 

KOLKATA – As many as four brokerage firms have downgraded ITC Ltd's stock after it tanked on the exchanges Thursday following the government's decision to impose high excise duty on cigarettes. 

 

Nuvama Wealth Management Ltd. downgraded its recommendation on the ITC stock to 'hold' from 'buy' and Motilal Oswal Financial Services Ltd. reduced to 'neutral'. Brokerage Prabhudas Lilladher Pvt. Lt. lowered its recommendation to 'reduce' from 'buy' and so did Emkay Global Financial Services Ltd. 

 

Nuvama has set a target price of INR 367 while brokerage Prabhudas Lilladher set a target price of INR 348. At the same time, Emkay Global cut its target price to INR 350 from INR 475. Brokerages fear that ITC will see a drastic fall in cigarette sales volume as prices are expected to go up sharply. 

 

In a note, JM Financial Services Ltd. said that as per the finance ministry's order on Dec. 31, the base goods and services tax rate will increase to 40% from Feb. 1 from the current 28% and the government has introduced new basic excise duty per 1,000 sticks. However, there is still ambiguity if the National Calamity Contingent Duty will continue and if it does, what will be the rate.

 

On the existing retail price, Emkay Global sees the tax payout per stick rising by over 50?ross King Size Filter Tip, Long Size Filter Tip, and Regular Size Filter Tip product categories and by 26% for the Deluxe Size Filter Tip category. 

 

"We expect the portfolio to witness price hikes of 32% in a staggered manner. Such regulatory actions negate our assumption of a rational taxation stance and are likely to have a bearing on the valuation multiple," Emkay Global said in a note.

 

Terming the incoming excise duty rates as a harsh increase, Nuvama forecast ITC's cigarettes sales volumes and operating profit from this business to decline in 2026-27 (Apr-Mar) after good volume growth of around 6% in the ongoing financial year. 

 

Historically, after such a sharp hike, volumes decreased 3–9% in the past, Nuvama said. For instance, in FY11 ITC's cigarette sales volume fell 3% on year after an 18% price hike came into effect.

 

"A double-digit tax hike could push consumers towards smuggled cigarettes," Nuvama feared adding that as the effective date of the new duty structure is Feb. 1, sales in January, before the expected price hike, are poised to be strong.

 

Brokerage Prabhudas Lilladher estimates that the excise duty will increase product prices by 23-50% and hit volumes by 12.5% in FY27. "The imposition of sharp duty shows a major shift in benign duty structure stance of the government of India which had resulted in industry gaining lost ground from illicit trade in past few years. As new rates imposed are 29-43% lower than peak rates mentioned in excise act, this opens a pandora's box for future increase in excise duty," it said in a note.

 

The current move takes the overall taxation on cigarettes from 50% to 61%, which is still significantly lower than World Health Organization's recommended rate of 75%, Prabhudas Lilladher noted. "Although benefits of lower leaf tobacco prices and some price hikes will improve margins, overall profitability will suffer in medium term," it said.

 

Despite an expected uptick in profitability in consumer goods and paperboards business, Prabhudas Lilladher expects ITC to post an earnings per share compounded aggregate growth rate of only 4.5% over FY26-28. 

 

However, Nuvama said that ITC offers strong dividend yield of 4% with 85% payout and tobacco raw material costs are likely to turn favourable in FY27 after a challenging past few quarters. About its stance to advise 'hold' on the stock rather than ‘sell', Nuvama said ITC's strong consumer goods portfolio will benefit from GST cuts and the recent business developments around the paperboards business will help bottom out the margins. 

 

At 1415 IST, shares of ITC traded nearly 4% lower at INR 349.70 on the National Stock Exchange. Thursday, the stock had fallen 10%.  End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Avishek Rakshit

Edited by Vandana Hingorani

 

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