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Citi upgrades ITC to Buy with Rs 300 target, 17% upside, as cigarette tax hike is largely passed through in prices
Citi estimates ITC has passed 75 per cent of the cigarette tax increase through price hikes. It still forecasts FY27E cigarette EBIT to fall 23 per cent before recovering in FY28E. The upgrade is from Sell, after the stock fell 34 per cent in 2026.
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The numbers
Figures from Business Today,
| FY27-29E EPS estimate raise: | 3-11 per cent |
|---|---|
| Cigarette segment valuation multiple: | 12 times earnings per share |
| Previous target price: | Rs 270 |
Why it matters to operators and investors
With cigarette EBIT still forecast down 23% in FY27E, the cash engine behind ITC's wider FMCG ambitions is under strain, so Citi's 12x cigarette multiple is a useful valuation marker and a cue to watch how ITC balances reinvestment against portfolio moves.
What to watch next
- ITC's next quarterly results: cigarette volume growth and EBIT trend against the -23% FY27E estimate
- Announced price increases by ITC and its cigarette rivals, and how closely they track the tax hike
- Changes to other brokers' ratings and targets, and whether FY27-29E EPS consensus moves in line with Citi's 3-11% increase
- The share price moving toward Rs 300, or failing to hold recent gains
- Any further government tax or regulatory announcement on cigarettes
Likely next moves
Our read of what comes next — analysis, not reported by the source.
- ITC is likely to keep taking staggered price increases across its cigarette portfolio to recover most of the tax hike, rather than absorbing it in margin.
- Other brokers may revisit their ratings and targets after Citi's move. Those holding cautious views on cigarette earnings could narrow their gaps on pass-through assumptions.
- Cigarette rivals are likely to follow ITC's pricing, since the tax hit applies across the category and a price gap would be hard to sustain.
- Price-sensitive smokers may trade down to cheaper or smaller-format products, which would be the first real test of Citi's pass-through assumption.
- Institutional investors that sold ITC during the 34% decline may start rebuilding positions if the first post-hike quarter shows stable volumes.
The counter-case
The case against this reading — not reported by the source.
The headline reads as if the tax hike has already been absorbed, but 'largely passed through' is only Citi's assumption of 75% pass-through. Even with that, Citi expects FY27E cigarette EBIT to fall 23%. Cigarettes are the profit engine, so the thesis rests on valuation support after a 34% drawdown, not on earnings momentum. The EPS upgrades of 3-11% are revisions to a lowered base, not evidence of growth. The 12x EPS multiple on cigarettes assumes the de-rating is finished, yet multiples can keep compressing if the market treats the business as structurally impaired by repeated tax hikes. Pass-through is also not free. Price increases on an already heavily taxed product can push smokers to cheaper formats, bidis and illicit or smuggled sticks, which would cut volumes and hurt the legal-cigarette mix. If elasticity is worse than modeled, or if ITC passes through less than 75% to protect volumes, EBIT falls further than -23% and the Rs 300 target fails. Non-cigarette FMCG is not a dependable offset, since its margins are thin and it is still scaling. A 17% upside to a sell-side target is also a modest cushion against a regulatory tail risk, and the next tax round could reset the whole debate. Upgrades after a 34% fall are often contrarian calls that come early.
The source
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