ITC's cigarette price hikes may cushion volumes, but hurt margins: Nomura

As the additional Goods and Services Tax (GST) came into effect on February 1, 2026, cigarette manufacturers have begun raising prices to offset a likely sharp decline in volumes, according to Nomura.

ITC implements price hikes

In the case of ITC, Nomura noted that the company has started increasing prices for its premium brands, including Gold Flake and Classic, across most subsegments. 

 

The brokerage highlighted that the current price hikes of approximately 30 per cent trail its earlier expectation of 35–40 per cent. Nomura warned that without further pricing action later this year, cigarette Earnings before interest and tax (Ebit) growth could face a steeper-than-anticipated decline of 20 per cent, compared to its previous estimate of 15 per cent. The brokerage believes that, given the significant quantum of the tax hike, ITC may be implementing price increases in stages to cushion the impact on volumes.

 

 

Nomura maintained its 'Reduce' rating and target price of ₹318, forecasting a flat earnings per share (EPS) Compound Annual Growth Rate (CAGR) through FY28. The brokerage noted that while the current lower-than-expected hikes might support volumes in the short term, they will weigh heavily on Ebit margins unless more aggressive pricing action is taken later this year.

Portfolio play and "shrinkflation"

To combat the expected volume slump, ITC is leveraging its portfolio by introducing a smaller 64mm Gold Flake Deluxe variant priced at ₹94 for 10 sticks, similar to the ₹94 price point of the larger 69mm regular version. This "shrinkflation" strategy aims to capture consumers down-trading from regular sizes while protecting overall margins, according to Nomura.

 

The company has also implemented a 32 per cent price hike on one of its regular-size (69mm) Gold Flake variants, raising the price to ₹125 for 10 sticks from ₹95 previously. The extent of the price hike for the Gold Flake Super Star brand in the Deluxe (64mm) size, currently priced at ₹59 for 10 sticks, remains to be seen.

Competitive landscape and illicit trade

While competitors like Godfrey Phillips have raised prices significantly—by 90 per cent for its Stellar Shift brand in the Kings-Slims segment to ₹19 per stick—Nomura warned that illicit and imported brands remain a major threat. These illegal alternatives continue to sell at ₹10–15 per stick, significantly undercutting legal premium brands.

 

Following the hike, Godfrey Phillips' Stellar Shift will now compete directly with ITC’s premium Classic Connect brand, the price of which was raised by only 30 per cent to ₹19.5 per stick, Nomura added.

 

At 11:25 AM, ITC shares were trading 0.39 per cent lower at ₹321.3 per share, while Godfrey Phillips India share price was up 0.62 per cent at ₹2196.85 per share. In comparison, BSE Sensex was up 0.36 per cent at 84,365.31.  Disclaimer: View and outlook shared belong to the respective brokerages/analysts and are not endorsed by Business Standard. Readers discretion is advised.