ITC Shares Slump to 52-Week Low Amid Cigarette Tax Hike Concerns
Shares of FMCG major ITC dropped 1% on Tuesday, January 13, closing at ₹334.85 each. This marked a fresh 52-week low for the stock. The decline came as the broader market showed weakness and investors reacted to an upcoming increase in excise duty on cigarettes.
Government Announces Higher Taxes on Tobacco Products
In December 2025, the Indian government revealed plans to impose an additional excise duty on tobacco products. This new levy will take effect from February 1, 2026. The finance ministry amended the Central Excise Act to introduce duties ranging from ₹2,050 to ₹8,500 per 1,000 cigarette sticks. The exact amount depends on the length of the cigarettes.
This excise duty will apply on top of the current 40% GST rate. The government also notified the Health and National Security Cess Act. Under this act, a cess will be imposed on the manufacturing capacity of pan masala businesses starting February 1.
Despite these changes, the overall tax burden on pan masala will stay unchanged at 88%. This figure includes the 40% GST. The revised framework replaces the earlier tax regime that had 28% GST plus a compensation cess on tobacco and related products.
Brokerages Downgrade ITC Stock After Tax Announcement
Since the government's announcement, several brokerages have downgraded their ratings on ITC stock. Nuvama lowered its rating from buy to hold. It revised its price target to a range of ₹415 to ₹534 per share. The firm stated that the tax hike appears larger than expected.
While we expected a sharp tax hike on cigarettes, the magnitude seems higher than anticipated, Nuvama said in a note. This will likely prompt consensus downgrades to ITC's cigarette volume and EBITDA estimates, as well as multiples.
Motilal Oswal also downgraded ITC from buy to neutral. It reduced its target price to ₹400. The brokerage noted that a stable tax regime had previously curbed the illicit cigarette market. This helped ITC's cigarette volumes grow at a 5% compound annual growth rate over the past five years.
Motilal Oswal warned that the tax hike could shift volumes from legal to illicit brands. It might also lead to downtrading within legal brands. The firm estimates ITC will need a price hike of at least 25% at a portfolio level just to maintain current net realization per cigarette stick.
Earnings pressure on cigarettes could remove near-term catalysts like soft tobacco prices and recovery in FMCG and paper businesses. It may also affect valuation comfort.
Axis Securities revised its rating on ITC stock to hold as well. It cut the target price to ₹380. Considering the recent tax hikes in the cigarette business and near-term headwind in the industry, we cut the margin estimates for FY26/FY27, the firm said. But we remain positive on medium to long-term growth.
ITC Share Price Shows Significant Decline
The FMCG stock has faced considerable pressure in the near term. ITC's share price has lost 17% during the nine trading sessions in January. Over the last six months, the stock has shed nearly 20%. In the past year, it has declined by 24%.
ITC shares trade on both the BSE and NSE. The stock hit a 52-week high of ₹471.50 on February 1, 2025.
Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies. We advise investors to consult certified experts before making any investment decisions.
