Resurfacing a February 2025 move: ITC had dropped nearly 15% in two days as cigarette excise hike prompted Nuvama downgrade
Recalling a February 2025 development — a sharp proposed increase in cigarette excise duty had led Nuvama Institutional Equities to cut ITC to Hold and lower its target price to Rs 415. The broker expected ITC to raise cigarette prices, risking volume losses to illicit products, though foods, packaging and dividend support were seen cushioning the impact.
What happened
A steep cigarette excise-duty hike triggered a near-15% ITC sell-off and a Nuvama downgrade to Hold. ITC may raise prices 20%, risking legal-volume losses to
Key facts
- ITC market capitalisation fell nearly 15% in two days
- Nuvama target price cut to Rs 415 from Rs 534
- Basic Excise Duty rises from Rs 5 to Rs 4,000 per 1,000 sticks for 69mm filter cigarettes
- Total tax incidence expected to increase by more than 30%
- ITC may raise cigarette prices by 20%
- Premium cigarette prices could rise Rs 2-Rs 5 per stick
- Unorganised market accounts for 23%
- Dividend yield is 4%
- Payout ratio is 85%
- Tobacco valuation multiple reduced to 17x from 23x
What to watch
- Final government notification, effective date and whether the proposed excise increase changes during the legislative process.
- Actual retail price hikes by ITC and competitors, including timing, magnitude and pack-size changes.
- Monthly/quarterly legal cigarette volume trends, market-share movement and signs of consumer downtrading.
- Evidence of illicit-trade growth, enforcement actions, seizures and industry commentary on tax evasion.
- Management guidance on cigarette EBIT margin, tax pass-through, dividend payout and FY earnings impact.
- FMCG, hotels, agri and packaging profitability trends that could cushion consolidated earnings.
- Announce calibrated cigarette price increases, likely staggered across premium, mid-tier and value brands.
- Reassess pack sizes, grammage, product mix and trade incentives to preserve affordability at key price points.
- Increase enforcement advocacy against illicit cigarettes and seek clearer implementation details from policymakers.
- Brokerages cut FY earnings estimates, cigarette-volume assumptions and target prices; investor focus shifts to dividend capacity and non-cigarette segment performance.
- ITC may emphasize FMCG margin expansion, hotels value creation and capital-allocation discipline to offset weaker cigarette sentiment.