Brokerages bearish on ITC as excise duty on cigarettes may hit earnings growth, slash target prices by up to 34%

ITC share price today

• ITC shares hit 52-week low after new excise duty on cigarettes announced
• Brokerages downgrade ITC, cut target prices citing earnings and volume impact
• Excise duty hike may raise prices, downtrading, and illicit cigarette growth

Did our AI summary help?

The shares of ITC have seen a significant plunge in two consecutive sessions after the government imposed new excise duty on cigarettes, effective from next month. Multiple brokerages have downgraded the stock, reducing their target prices while estimating an impact on earnings growth.

The shares of the company dropped 5 percent on January 2 to hit a fresh 52-week low of Rs 345.25 apiece, extending losses for the second consecutive session. The sharp selloff has wiped off around Rs 72,000 crore from the company’s market capitalization in just two days.

Why are ITC shares falling?

The Parliament in December approved the Central Excise (Amendment) Bill, 2025, clearing the way for a sharp increase in duties on cigarettes and other tobacco products. It replaces a temporary levy on cigarettes and tobacco products.

The excise duty would be imposed on cigarettes in addition to a 40 percent GST, according to an order issued late on Wednesday. The finance ministry notified that an excise duty of Rs 2,050–8,500 per 1,000 sticks, depending on cigarette length, will take effect from February 1.

The duty translates into a 22-28 percent increase in overall costs for 75-85 mm cigarettes, analysts at ICICI Securities said. "Cigarettes longer than 75 mm account for roughly 16% of ITC's volumes and are likely to see price increases of 2–3 rupees per stick as a result of the levy," they said.

Brokerages on ITC:

Brokerage firms Emkay Global Financial Services and Prabhudas Lilladher have downgraded ITC to ‘Reduce’ and cut the target prices on the stock by 26–34 percent after the proposed excise duty by the government on cigarettes. The brokerages see the move hitting the company's cigarette volumes.

JPMorgan on ITC:

JPMorgan downgraded its rating on ITC shares to ‘Neutral’ and reduces its target price by 21 percent to Rs 375 per share from Rs 475 per share. The latest target price implies a downside potential of more than 3 percent over the previous closing price of Rs 363.85 apiece.

The international brokerage cited the sharp tax increase for cigarettes as the reason for the downgrade, although it awaits clarity on finer aspects of the tax changes. Early read suggests that ITC will have to announce a weighted average price hike of more than 25 percent (if NCCD is removed), and 35 percent (if NCCD is kept the same) to ensure than net realization remains unchanged.

The higher tax increase for the King Size Filter (KSFT) segment implies increased risk of consumers downtrading to cheaper variants, JPMorgan further said, adding that it may also induce an increase in offtake of illicit cigarettes.

JPMorgan expect ITC to largely pass on the tax impact to the consumers, which could would impact volume/earnings growth and weigh on stock multiples. This could restrict stock upside from current levels over the next 6-9 months, it added.

Nuvama on ITC:

Nuvama downgraded the stock to ‘Hold’ with a target price of Rs 415 per share. This implies an upside potential of more than 14 percent from the stock’s previous closing price.

The international brokerage said that while it expected a sharp tax hike on cigarettes, the maginitude is much higher than expectations.

It added that this could prompt consensus downgrades to ITC’s cigarette volumes and EBITDA estimates. It reckons a more than 20 percent price hike and a more than 30 percent tax hike overall, for which it cut EBITDA estimates by 7 percent each for FY27 and FY28.

UBS on ITC:

UBS maintained its ‘Buy’ call on the stock, but reduced its target price to Rs 430 per share from Rs 490 per share. This implies an upside potential of nearly 35 percent from the stock’s previous closing price.

The international brokerage said that the additional excise duty will likely weigh on the stock price and create uncertainty. It added that clearly the prospect of earnings growth revival haS weakened.

Current price is now baking in cigarette EBIT growth of 2-3 percent sustainably, it added.

Jefferies on ITC:

Jefferies downgraded the stock to ‘Hold’, and cut its target price to Rs 400 per share, implying an upside potential of nearly 10 percent from the stock’s previous closing price. The global brokerage said that ITC may need about 40 percent price hikes to pass on the impact of tax hike, which will impact volumes.

Motilal Oswal on ITC:

Motilal Oswal Financial Services downgraded the stock to ‘Neutral’, with a target price of Rs 400 per shares, same as Jefferies. The domestic brokerage said that such a sharp tax increase is unprecedented and has surprised the brokerage firm given the backdrop of stable taxes over the last few years.

It added that ITC will need a price hike of at least 25 percent at a portfolio level just to maintain the current net realization per cigarette stick. Moreover, earlier in GST 2.0, the government had revised GST rate on cigarette from 28 percent to 40 percent, which will also implement from February 1 this year.

"The tobacco lobby is opposing this tax increase, and we will see if there are any revisions in rates. However, if there is no change in taxes, we expect that it will significantly impact the legal cigarette market, and the price arbitrage between legal and illegal brands will be huge. It can shift volume from legal to illicit brands and could lead to downtrading within the legal brands," Motilal said.

JM Financial on ITC:

JM Financial also said that the new excise duty structure is significantly higher that its expectations after the new GST regime. “We await clarity on continuation of NCCD, final quantum of duty which will get implemented and would revisit our estimates/rating post that. However, if above duty rates are implemented then we see this as significant negative for ITC as sharp duty hike will: a) negatively impact volumes and meaningfully impact Cigarette EBIT, b) mix could see deterioration and c) concerns on illicit cigarette will also re-emerge,” it added.

ITC share price:

ITC shares have lost more than 13 percent in the past five days, and over 15 percent in the past six months. The stock tumbled over 28 percent in the past one year, but gained around 64 percent in the past five years.

Follow all LIVE updates from the stock markets here.