ITC (ITC IN) – Event Update – Cigarette excise opens pandora’s box – REDUCE
Published on 01 Jan 2026
We cut EPS estimates by 3.2/11.5/11.8% and rating from Buy to reduce as we factor in the expected impact of cigarette excise on volumes and profitability. We estimate that the excise duty will increase the product prices by 23-50% and hit volumes by 12.5% in FY27. The imposition of sharp duty shows a major shift in benign duty structure stance of GOI which had resulted in industry gaining lost ground from illicit trade in past few years. As new rates imposed are 29-43% lower than peak rates mentioned in excise act, this opens a pandora’s box for future increase in excise duty.
The current move takes the overall taxation on cigarettes from 50% to 61%, which is still significantly lower than WHO recommended rate of 75%. Although benefits of lower leaf tobacco prices and some price hikes will improve margins, overall profitability will suffer in medium term. Despite expected uptick in profitability in FMCG and Paperboard, we now expect ITC to post an EPS CAGR of only 4.5% over FY26-28. We cut SOTP based target price to Rs348 (based on Sept27, Rs528 earlier) and cut the rating to reduce.
