ITC shares sink to 52-week low as regulatory shock triggers sharp re-rating
Shares of ITC Ltd have come under intense selling pressure, prompting a wave of brokerage downgrades and sharp target price cuts, after the government announced a steep increase in excise duty on cigarettes effective February 1. The stock has now fallen for two consecutive sessions, hitting a fresh 52-week low of ₹345.25, as investors reassess earnings visibility in the company’s most profitable segment.
In just two trading sessions, ITC’s sell-off has wiped out nearly ₹72,000 crore from its market capitalisation, underlining the scale of the market’s reaction to the regulatory change. Analysts across global and domestic brokerages have flagged risks to volumes, margins and valuation multiples, even as they await clarity on finer details of the new tax regime.
What triggered the sharp fall in ITC shares
The decline follows Parliament’s approval of the Central Excise (Amendment) Bill, 2025, which replaces the existing temporary levy with a permanent excise structure on cigarettes and other tobacco products. The finance ministry subsequently notified an excise duty of ₹2,050–₹8,500 per 1,000 cigarette sticks, depending on length, over and above the 40 percent GST, effective February 1.
According to analysts, this translates into a 22–28 percent increase in overall costs for cigarettes in the 75–85 mm category.
“Cigarettes longer than 75 mm account for roughly 16 percent of ITC’s volumes and are likely to see price increases of ₹2–3 per stick as a result of the levy,” analysts at ICICI Securities said.
The magnitude of the tax increase has taken markets by surprise, especially after several years of relative stability in cigarette taxation.
Also Read : FMCG Stocks Under Pressure With Index Down 4% In Two Days And ITC M-Cap Erosion In Focus
Why brokerages see earnings growth under pressure
Brokerages broadly agree that ITC will be forced to pass on most of the tax burden to consumers, but warn that such steep price hikes could hurt volumes and revive concerns around illicit trade.
Key concerns highlighted by analysts include:
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Sharp price hikes needed to protect net realisations
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Downtrading risk, especially in premium and king-size segments
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Volume contraction due to affordability pressures
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Re-emergence of illicit cigarette trade, widening price arbitrage
Most brokerages now believe cigarette earnings growth could remain subdued for the next few quarters, limiting near-term upside in the stock.
JPMorgan downgrades ITC, warns of steep price hikes and downtrading risk
JPMorgan downgraded ITC to ‘Neutral’ and cut its target price by 21 percent to ₹375 from ₹475. The brokerage said early estimates suggest ITC may need to announce a weighted average price hike of over 25 percent if the National Calamity Contingent Duty (NCCD) is removed, and up to 35 percent if NCCD remains unchanged, just to protect net realisations.
“The higher tax increase for the King Size Filter segment raises the risk of consumers downtrading to cheaper variants and may also induce higher offtake of illicit cigarettes,” JPMorgan said.
The brokerage added that while ITC is likely to pass on the tax impact, this would weigh on volume growth, earnings momentum and valuation multiples, potentially capping stock performance over the next 6–9 months.
Nuvama flags sharper-than-expected tax shock, cuts EBITDA estimates
Nuvama downgraded ITC to ‘Hold’ with a target price of ₹415, citing that while a tax hike was anticipated, the magnitude far exceeded expectations.
The brokerage expects:
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More than 20 percent price hikes
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Over 30 percent increase in overall tax burden
As a result, Nuvama cut its EBITDA estimates by 7 percent each for FY27 and FY28, warning of consensus downgrades to cigarette volume assumptions.
UBS stays positive but trims target as uncertainty rises
UBS maintained its ‘Buy’ rating but reduced its target price to ₹430 from ₹490. While UBS sees long-term value, it acknowledged that the additional excise duty introduces near-term uncertainty.
“The prospect of earnings growth revival has clearly weakened,” UBS said, adding that current valuations now factor in cigarette EBIT growth of just 2–3 percent on a sustainable basis.
Jefferies, Motilal Oswal turn cautious amid volume risk
Jefferies downgraded ITC to ‘Hold’ and cut its target price to ₹400, estimating that ITC may need price hikes of nearly 40 percent to fully offset the tax impact—an outcome likely to hurt volumes.
Motilal Oswal Financial Services also downgraded the stock to ‘Neutral’, calling the tax increase “unprecedented” in the context of recent policy stability.
“It will significantly impact the legal cigarette market. The price arbitrage between legal and illegal brands could widen sharply, shifting volumes toward illicit trade and causing downtrading within legal brands,” Motilal said.
JM Financial highlights multiple downside risks
JM Financial said the new excise duty structure is materially higher than expectations, and warned of several risks if the rates are implemented as notified:
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Negative impact on cigarette volumes
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Meaningful hit to cigarette EBIT
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Deterioration in product mix
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Renewed concerns around illicit cigarette penetration
The brokerage said it would revisit estimates once there is clarity on the continuation of NCCD and the final duty framework.
ITC share price performance reflects rising uncertainty
ITC shares have now:
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Fallen over 13 percent in five days
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Declined more than 15 percent in six months
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Dropped around 28 percent over the past year
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Still gained about 64 percent over five years, highlighting long-term wealth creation despite near-term setbacks
For investors, the sharp shift in brokerage stance underscores how quickly regulatory risk can alter the outlook for even large, diversified FMCG players. Until there is greater clarity on taxation and its impact on demand, analysts believe volatility in ITC shares is likely to persist, keeping sentiment cautious in the near term.
