Shares of ITC extended losses for a second straight session on Thursday, sliding 4.14% to Rs 348.80 on the Bombay Stock Exchange (BSE) around 11:15 am, after plunging nearly 10% in the previous session.
The sharp sell-off comes after the finance ministry revised the taxation structure for cigarettes, effective February 1, 2026.
Under the new framework, the base GST rate has been raised to 40% from 28%, a new basic excise duty per 1,000 sticks has been introduced in place of the earlier fixed cess plus ad valorem structure, while the National Calamity Contingent Duty (NCCD) remains unchanged.
JM Financial said the revised excise duty structure is significantly higher than the current regime and runs contrary to expectations of a tax-neutral transition under GST.
On a blended basis, the brokerage estimates a 40–50% increase in basic excise duty and overall tax incidence per cigarette stick for ITC, which could force the company to implement MRP hikes of 20–40% or more, with the blended increase potentially around 35%, to absorb the impact.
The brokerage noted that while the impact is relatively flat for the DSFT segment (below 65 mm), accounting for about 30% of ITC’s volumes, duty rates have risen sharply for RSFT (around 50% of volumes), Longs and KSFT segments.
This skewed increase raises the risk of consumer downtrading, product mix deterioration, and a renewed threat from illicit cigarette sales.
JM Financial also highlighted a cascading effect as GST at 40% will now be levied on MRP instead of net sales value, compounding the impact of higher excise duties.
If implemented as notified, the brokerage sees the changes as a significant negative, warning of volume pressure, a meaningful hit to cigarette EBIT, and delayed earnings catalysts.
Religare Broking said the new excise regime could weigh on near-term profitability and sentiment, though ITC’s pricing power and diversified business model may support medium-to-long-term earnings resilience.
Motilal Oswal, meanwhile, downgraded ITC to Neutral following what it termed an “unprecedented” tax hike, and cut valuation multiples for the cigarette business.
The brokerage set a target price of Rs 400, implying about 10% upside from current levels, but cautioned that steep price hikes could shift volumes to illicit brands, weaken product mix and pressure near-term earnings. Motilal Oswal has factored in a 6% EBIT contraction in FY27 and cut EPS estimates for FY27 and FY28.
With clarity still awaited on the final implementation and any possible revisions, analysts said ITC’s pricing strategy over the coming months will be critical in determining the extent of the impact on volumes and margins.
(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)
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