ITC Faces Multiple Brokerage Downgrades After Cigarette Excise Duty Hike
ITC faces widespread brokerage downgrades after government implements sharp cigarette excise duty hike from February 1. Major firms including JPMorgan, PhillipCapital, Nuvama, and Motilal Oswal cut ratings and price targets significantly, with new tax structure ranging ₹2,050-8,500 per thousand sticks expected to drive substantial price increases and volume declines across cigarette categories.
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Multiple domestic and international brokerage firms have downgraded ITC shares following the government's sharp increase in cigarette excise duties effective February 1. The downgrades span across major firms including JPMorgan, Nuvama, PhillipCapital, Emkay, and Motilal Oswal, with most significantly reducing their price targets amid warnings of substantial cigarette price increases ranging from 20% to 50%.
Major Brokerage Actions and Revised Targets
JPMorgan led the downgrades by cutting ITC to Neutral from Overweight and slashing the target price to ₹375 from ₹475. The firm estimates a weighted average price hike of over 25% if NCCD is removed, and over 35% if NCCD remains. PhillipCapital delivered the most severe downgrade, cutting the stock to Reduce from Buy with a target price of ₹348 from ₹528, describing the excise hike as opening a "Pandora's box".
| Brokerage Downgrades: | Previous Rating | New Rating | Previous Target | New Target |
|---|---|---|---|---|
| JPMorgan: | Overweight | Neutral | ₹475 | ₹375 |
| PhillipCapital: | Buy | Reduce | ₹528 | ₹348 |
| Nuvama: | Buy | Hold | ₹534 | ₹415 |
| Emkay: | Add | Reduce | ₹475 | ₹350 |
| Motilal Oswal: | Buy | Neutral | ₹515 | ₹400 |
Nuvama downgraded the stock from buy to hold, cutting its price target to ₹415 from ₹534, warning that cigarette prices may need to rise by at least 20% on key brands. Emkay described the tax hike as a "fiscal bombshell" and expects portfolio-wide price hikes of around 32% in a staggered manner.
New Excise Duty Structure and Expected Impact
According to the Finance Ministry order, the new excise duty structure ranges between ₹2,050 and ₹8,500 per thousand sticks, depending on product length. This represents a tax increase of 20% to 65%, far exceeding market expectations of 10% to 15%. The tax increase is steepest for longer cigarettes, while cigarettes under 65mm face a relatively modest hike.
| Tax Structure Details: | Specifications |
|---|---|
| Effective Date: | February 1 |
| Duty Range: | ₹2,050 - ₹8,500 per thousand sticks |
| Tax Hike Range: | 20% - 65% |
| Expected Price Hike: | 23% - 50% across categories |
| Volume Impact: | 5% - 12.50% decline expected in FY27 |
DAM Capital expects increased down-trading to lower-priced cigarette categories and builds in a 7% volume de-growth for FY27. PhillipCapital estimates cigarette volumes to decline 12.50% in FY27, followed by 2.50% growth in FY28.
Financial Projections and Valuation Cuts
Brokerages have significantly revised their financial estimates and valuation multiples for ITC. Nuvama cut its FY27 and FY28 EBITDA estimates by 7% each and reduced the valuation multiple for the cigarettes business to 17 times from 23 times. Antique cut FY27-28 EBITDA estimates by 9% to 11%, while DAM Capital reduced EPS estimates by 8% and 9% for FY27 and FY28 respectively.
| Financial Revisions: | Nuvama | DAM Capital | PhillipCapital |
|---|---|---|---|
| EBITDA Cut FY27/FY28: | 7% each | - | - |
| EPS Cut FY27/FY28: | - | 8%/9% | - |
| Volume Decline FY27: | - | 7% | 12.50% |
| Cigarette Valuation: | 17x (from 23x) | - | - |
Motilal Oswal cut the valuation of ITC's cigarette business to 14 times from 17 times, believing that the favourable phase for the legal cigarette industry is over and valuations may revert to historical multiples under a high-tax regime.
Positive Factors Amid Downgrades
Despite the widespread downgrades, several brokerages maintained buy ratings, citing supportive factors. Macquarie maintained an Outperform rating with a ₹500 target, noting that moderating leaf tobacco costs could offer some margin cushion. B&K Securities and Antique retained their Buy ratings, with Antique viewing the tax hike as transient near-term pain.
| Maintaining Buy Ratings: | Target Price | Key Rationale |
|---|---|---|
| Macquarie: | ₹500 | Moderating tobacco costs, awaiting NCCD clarity |
| DAM Capital: | ₹440 | Negatives reflected in price, Budget relief possible |
| B&K Securities: | ₹504 | Long-term fundamentals intact |
| Antique: | ₹445 | Medium-to-long-term outlook positive |
DAM Capital believes most negatives are already reflected in the stock price and any relief in the Budget, including possible NCCD removal, could act as a positive trigger. The brokerage expects significant trade and retail stocking in January 2026 ahead of implementation.
Historical Stock Returns for ITC
| 1 Day | 5 Days | 1 Month | 6 Months | 1 Year | 5 Years |
|---|---|---|---|---|---|
| -0.79% | -1.89% | -21.17% | -22.27% | -26.83% | +63.02% |
