ITC tanks 15% in 4 days, hits 33-month low after tax hike on cigarettes

A sharp decline in stock price of ITC has seen ₹75,675 crore market capitalisation erosion of the company in the past four trading days.

ITC share price today

 

ITC share price hit a 33-month low of ₹342.60, falling 2 per cent on the BSE in Tuesday's intraday deal. The stock is quoting at its lowest level since April 2023.

 

In the past four trading days, ITC stock price has tanked 15 per cent after the government announced a significant tax hike on cigarettes. A sharp decline in stock price of the diversified fast moving consumer goods (FMCG) company has eroded ₹75,675-crore in market capitalisation during the period.

 

Further, with the past four days' decline, ITC stock price has plunged 27 per cent from its 52-week high level of ₹471.30 touched on February 1, 2025.

 

 

Why is ITC stock under pressure?

 

The government, on December 31, 2025, notified a new tax structure for tobacco and pan masala products, set to take effect from February 1, 2026, ending the GST compensation cess (replaced with new tax rates).

 

Besides, the Government also has announced a significant increase in the tax rate on cigarettes in the range of 20-55 per cent (depending on various sizes) after a brief period of stable tax environment over FY22-25. This will be over and above the GST rate of 40 per cent (increased from 28 per cent) on cigarettes.

 

The unprecedented tax hike brings an end to a five-year period of relative stability during which the legal cigarette market had regained share, leading to market contraction. With legal prices now poised to rise sharply, the price arbitrage between tax-paid and smuggled brands is set to widen significantly, according to analysts.

 

"Empirical evidence indicates that ITC's cigarette business may witness a 5.5 per cent decline in the sales volume considering 18-19 per cent price hike in the portfolio in FY27. It takes around 2-3 quarters for price hikes to get absorbed in the market. In FY11, ITC's cigarettes sales volume decreased by 3 per cent affected by 17 per cent increase into the tax rate on cigarettes. Significant price hike will not only disturb smokers' consumption of daily sticks but will also witness some shift to illegal cigarettes in the coming years," analysts at ICICI Securities said in company update.

 

However, analysts at the brokerage don't expect ITC to pass on the tax hike in one go and see price increases in two tranches (70 per cent happening in FY27, while 30 per cent will be taken in FY28).  Moreover, it expects some of the shift happening from kings/longs to regular in the near term.  "This will have an impact on the margins of the ITC's cigarette business, which constitutes 80 per cent plus to the overall Ebitda of ITC's standalone entity. Hence, we expect the overall Ebitda margins to decline by 128bps Y-o-Y to 33.6 per cent in FY27 (profit after tax to grow by 4 per cent)," ICICI Securities said.

 

Cigarettes also contribute 48 per cent–50 per cent of total revenue of ITC. Analysts at Axis Securities believe it will be challenging for the company to mitigate the tax impact and protect overall profitability. 

 

"The FMCG portfolio has seen an improvement in demand momentum and is positioned for a recovery in the coming quarters. Government budgetary measures, GST rate reductions (except sin goods), an expanding outlet network, localisation initiatives, and a continued focus on premiumisation are expected to further support growth in the coming years," the brokerage firm said.      ============================  Disclaimer: View and outlook shared on the stock belong to the respective brokerages and are not endorsed by Business Standard. Readers discretion is advised.