Fear of 10-17% excise duty hike wrecks ITC ahead of Budget

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26 Aug, 2025 12:21

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Moneycontrol Bureau Concern of an increased excise duty on tobacco in the upcoming Budget is pressurising ITC stock. Shares of the FMCG major slipped 4 percent intraday on Monday. Analysts say there may be an excise duty hike of 10-17 percent in cigarettes in FY17. Motilal Oswal expects a blended excise duty increase of 10 percent. Higher-than-expected excise hikes may impact already dampened cigarette volumes. Cigarette industry is already facing a crunch in volume in last few quarters due to multiple excise duty hike initiated by the government for four consecutive years.  In FY15-16, excise duty was hiked 25 percent in cigarette lengths less than 65mm and 15 percent increased for lengths over 65 mm. According to Motilal Oswal,  ITC may implement a weighted average price hike of 10-11 percent to pass on the excise duty increase. It adds that in such a scenario, cigarette volumes may decline 8-10 percent in FY17.Kotak says Budget FY17 may see moderate rise of 5-10 percent in excise duties on cigarettes. "If duty hike is in line with our expectations, we would expect the impact on ITC to be positive. A 15 percent hike in duties shall have a negative sentimental impact; however, we believe the same is factored into the price as of now," it adds in a report. ITC’s key product tobacco-based items mainly cigarette sales volume saw a moderate decline in December quarter to 4.5 percent after four quarters of double digit declines. ITC’s cigarette sales volume has fallen over 20 percent in the last three years due to steep increases in taxation and subsequent price hikes.After Q3 results, analysts were, however, hopeful of growth in cigarette volumes. Jefferies had said that low single-digit decline in cigarette volumes was better than beaten-down expectations and likely indicates a bottoming out of demand. According to Jefferies, revival in overall consumption trends should kick start cigarette volume recovery for ITC in due course.Macquarie also said that while cigarette volume outlook will continue to depend on excise duty changes in the Union Budget, after three years of decline in volumes, the base has become favourable for volume growth in cigarettes.At 11:39 hrs ITC was quoting at Rs 297.60, down Rs 7.25, or 2.38 percent on the BSE.Follow @NasrinzStory