ITC Share Price Target: Nuvama Downgrades Rating After Steep Excise Duty On Cigarettes

Domestic brokerage Nuvama has downgraded the stock rating of ITC Ltd. from ‘buy’ to ‘hold’, anticipating negative impact on sales and operational income after the government imposed an excise duty on cigarettes, effective next month.

Excise Duty on Cigarettes: What You Need to Know

According to a Finance Ministry order issued late on Wednesday, the excise duty will range between Rs 2,050 and Rs 8,500 per thousand sticks, depending on product length, from Feb. 1. This move is expected to have a significant impact on the Indian stock market, particularly on ITC’s share price.

Nuvama’s Analysis: Expected Impact on ITC

While we expected a sharp tax hike on cigarettes, the magnitude seems higher than anticipated, likely prompting consensus downgrades to ITC’s cigarette volume and EBITDA estimates as well as multiples, said Nuvama analysts in a note on Thursday.

They expect a more than 20% price hike and more than 30% tax hike, which is meaningfully steep. A double-digit tax hike could push consumers towards smuggled cigarettes, they said. This could have a negative impact on ITC’s stock price target.

Impact on ITC’s Sales and Operational Income

As the effective date of the excise duty is Feb. 1, Nuvama estimates January sales and production of ITC to sharply expand and therefore report a lower impact in the March quarter earnings.

Expected impact on ITC:

• Cigarette volumes and Ebitda are likely to decline YoY in FY27, after 6% growth in FY26.
• Historically, sharp tax hikes have led to 3–9% volume declines.
• A steep hike may push consumers towards smuggled cigarettes, hurting legal volumes.
• Past data shows that higher taxes do not translate proportionately into higher revenues.

Nuvama’s Share Price Target for ITC

Nuvama has a share price target of Rs 415 on the ITC stock, implying a 14% upside to Thursday’s close. This is based on their analysis of the company’s financial performance and the expected impact of the excise duty on cigarettes.

Why Nuvama Didn’t Downgrade ITC Stock Further

Analysts also listed four reasons for not downgrading ITC stock further to the ‘reduce’ category. They said ITC offers strong dividend yield of 4% with 85% payout, tobacco RM is likely to turn favourable in FY27 after a challenging past few quarters. ITC has a large foods portfolio where GST cuts will be beneficial and the Century Paper acquisition will bottom out of FY27 margins.

Total Taxes on Cigarettes in India

The total taxes on cigarettes in India currently account for about 53% of retail prices, which is significantly below the World Health Organisation benchmark of 75% intended to discourage consumption, according to a Reuters report.

ITC Share Price Movement

Shares of ITC settled 9.7% lower at Rs 363.85 on the NSE, compared to a flat benchmark Nifty 50. The stock has risen 10% in the last 12 months.

Out of 38 analysts tracking the company, 36 maintain a ‘buy’ rating, one recommends a ‘hold,’ and one suggests ‘sell,’ according to Bloomberg data. The average 12-month consensus price target implies an upside of 36%.

Conclusion

In conclusion, the excise duty on cigarettes imposed by the government is expected to have a negative impact on ITC’s sales and operational income. However, Nuvama’s share price target of Rs 415 implies a 14% upside to Thursday’s close, indicating that the company’s dividend yield and large foods portfolio will help mitigate the impact of the excise duty.