Shares of ITC Ltd have come under renewed pressure as rising cigarette taxes and repeated price increases continue to weigh on investor sentiment and the company’s earnings outlook. The stock is currently down more than 23% year-to-date, with trading levels slipping back to lows last seen in 2022. Analysts say the decline reflects mounting concerns over further tax-driven price hikes in the cigarette segment.

According to a note by brokerage firm Motilal Oswal, the cigarette price hike cycle for ITC may not be complete yet. The brokerage estimates that, in order for the company to remain earnings-neutral, maximum retail prices across its cigarette portfolio may need to increase by more than 35%. This suggests additional pricing actions could be required to offset higher taxation and protect margins.

The impact of earlier price increases is already visible in the market. A premium cigarette pack that previously retailed at around ₹170 is now priced at approximately ₹240, marking an increase of over 41%. Several popular variants, including Gold Flake King Blue, Gold Flake King Mixpod, and Classic Ice Burst, have reportedly seen prices revised to around ₹25 per stick, up from ₹18. However, the adjustment has not been uniform across all product categories.

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Motilal Oswal noted that ITC has not fully passed on the tax burden to consumers, unlike in earlier tax cycles when the company typically implemented immediate price hikes to maintain earnings stability. This time, the company is reportedly following a phased approach, partly to avoid rapid demand disruption and to reduce the risk of consumers shifting to lower-priced or illegal cigarette alternatives.

The brokerage also highlighted concerns around the illicit cigarette market in India, which currently accounts for an estimated 26% of total volumes—among the highest globally. Historical trends suggest that steep tax increases tend to expand this segment further, with illicit trade reportedly gaining nearly 1,000 basis points in share between 2012 and 2021. This dynamic continues to pose a structural challenge for the industry as a whole.

Motilal Oswal expects ITC’s cigarette volumes to decline by around 10% in FY27 and projects a 19% fall in cigarette earnings before interest and taxes (EBIT) for the same period. The brokerage has maintained a “Neutral” rating on the stock with a target price of ₹300, reflecting caution over near-term demand pressures and ongoing tax-related uncertainty.

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