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Informist, Thursday, Jan. 1, 2026

 

NEW DELHI – Nuvama Wealth Management Ltd. has downgraded its recommendation on ITC shares to 'hold' from 'buy', forecasting a year-on-year decline in the company's cigarette business' volume and earnings before interest, tax, depreciation, and amortisation in 2026-27 (Apr-Mar). This comes after the government imposed the excise duty on cigarettes in the range of INR 2,050-INR 8,500 per thousand sticks based on the length and type of the product, effective from Feb. 1. "We still await further clarifications, but to us it seems a harsh hike," the brokerage said. 

 

Nuvama has cut the company's estimated EBITDA for FY27 and FY28 by 7?ch. It has also sharply cut its tobacco price-to-earnings valuation multiple to 17 times from 23 times arriving at a sum-of-the-parts target price of INR 415. Pending clarity, the brokerage estimates a more than 20% price hike and a more than 30% tax hike, which it said is "meaningfully sharp". Historically, after such a sharp hike, volumes have decreased 3–9%, the brokerage said.

 

The brokerage said that while it had expected a sharp increase in cigarette taxes, the magnitude was higher than anticipated. A double-digit tax hike could push consumers towards smuggled cigarettes, according to Nuvama. As the effective date is Feb. 1, the brokerage estimates ITC's January sales and production to sharply expand and therefore see a lower impact in the March quarter. Nuvama said that a rollback of the duty hike appears difficult and could take time, as industry will have to discuss the matter with the government and back it up with supporting data.

 

The brokerage said it did not downgrade the recommendation to 'reduce' as ITC offers a strong dividend yield of approximately 4% with about 85% payout. Secondly, tobacco costs are likely to turn favourable in FY27 after a challenging past few quarters, it added. Among other reasons, the brokerage said ITC has a strong foods portfolio which is expected to benefit from the recent goods and services tax rate cuts. Lastly, in relation to the the Century Pulp & Paper acquisition, Nuvama expects margins to bottom out by FY27.  End

 

Reported by Shakshi Jain

Edited by Akul Nishant Akhoury

 

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