Source CNBC TV18
Shares of ITC Ltd fell to a three-year low in early trade on Thursday after several brokerage firms downgraded the stock and cut target prices following a hike in cigarette excise duty announced in the latest government policy move. The sharp reaction reflects growing concerns over the impact of higher taxes on the company’s core cigarette business, which remains its biggest profit contributor.
The stock declined sharply on the NSE, extending losses for the third consecutive session, as investors reassessed ITC’s near-term earnings outlook. Analysts warned that the excise duty increase could lead to higher retail prices, potentially dampening volumes in a segment that has already been facing regulatory and taxation pressures.
Multiple brokerages lowered their earnings estimates for ITC, citing margin compression risks and limited ability to fully pass on the tax hike to consumers without affecting demand. Some firms downgraded the stock from “buy” to “hold” or “neutral,” while cutting target prices to factor in slower growth in cigarette volumes and profitability.
Cigarettes contribute a significant portion of ITC’s operating profit, despite accounting for a smaller share of overall revenues. Analysts noted that while ITC’s diversified portfolio — including FMCG, hotels, paperboards, and agribusiness — provides some cushion, these segments may not be sufficient in the near term to offset pressure on the cigarette business.
Market participants also pointed out that frequent policy interventions and taxation changes continue to weigh on investor sentiment toward tobacco stocks. “Any increase in excise duty has a disproportionate impact on valuations, given the sensitivity of volumes and margins,” one analyst said.
ITC management has not yet commented on the latest excise hike. However, in past instances, the company has adopted calibrated price increases and cost-control measures to protect profitability.
Despite the current sell-off, some long-term investors believe ITC’s strong cash flows, high dividend yield, and steady growth in non-cigarette FMCG businesses could provide support at lower levels. For now, however, the stock remains under pressure as markets digest the implications of the excise hike and brokerage downgrades.
