ITC, Godfrey Phillips shares surge up to 20% amid reports of cigarette price hikes: Here's what UBS says

Cigarette stocks rise

• Cigarette stocks rose after price hikes to counter excise increase
• Godfrey Phillips raised Marlboro Compact price from Rs 9.5 to Rs 11.5
• UBS kept 'Buy' on ITC, sees over 29 percent upside potential

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The shares of cigarette-makers surged in trade on February 18, extending gains amid reports of price hikes. UBS has issued a bullish call for ITC shares, stating that the valuation now appears to be appealing after the recent correction.

ITC shares gained more than 2 percent to trade at Rs 332.70 apiece, while Godfrey Phillips India shares rallied around 20 percent to trade at Rs 2,478.8 apiece.

Price hikes:

The cigarette-makers have sharply hiked prices to offset the impact of excise increases, resulting in an increase in EBIT per stick, CNBC Awaaz reported. Godfrey Phillips India has hiked the price of Marlboro Compact from Rs 9.5 per stick to Rs 11.5 per stick, the report added.

According to the business channel's estimates, nearly 50 percent of ITC's portfolio may see a larger-than-expected price hike. Both players are expected to launch new products with strong price hikes in the 74 mm category, as per the report. It cited B&K Securities as saying that while the price hikes may slightly impact volumes, the overall profitability drop may be mitigated.

Prices for ITC's Gold Flake and Classic (Premium) has been increased by 41 percent, Classic Connect (Slims) by 20 percent and Gold Flake Superstar (Value) by nearly 19 percent, according to NDTV Profit.

Moneycontrol couldn't independently verify the reports.

UBS on ITC:

UBS kept a 'Buy' call on the shares of ITC, but cut its target price to Rs 395 apiece from Rs 420 apiece. The latest target price implies an upside potential of more than 29 percent from the stock's previous closing price.

The international brokerage said that distributor checks indicate a range of imminent price hikes, which is now arriving, according to the note cited by CNBC-TV18. ITC's 84 mm cigarettes (KSFT segment), is expected to be priced at Rs 24 per stick (from Rs 17). This segment has seen the steepest tax increase.

UBS added that it is clear that price hikes have been fully passed on in premium cigarettes, while it is kept minimal in price sensitive segments of 69 mm and 64 mm. This pricing approach is likely to keep ITC's volume and EBIT impact to minimum, it added.

"We think valuation has become quite appealing now and a risk worth taking. As the price curve and overall portfolio continues to take shape, we expect this will serve as the key catalyst for the stock performance," it said, according to NDTV Profit.

The cigarette stocks had seen strong volatility earlier, plunging sharply earlier this year. The Parliament in December last year 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. The finance ministry notified that an excise duty of Rs 2,050–8,500 per 1,000 sticks, depending on cigarette length, took effect from February 1.

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