ITC Ltd, India’s leading cigarette manufacturer, experienced a significant drop in market capitalisation, losing nearly $7 billion following a substantial increase in tobacco taxes.
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India’s largest cigarette maker, ITC Ltd, saw nearly $7 billion wiped off its market capitalisation after a sharp hike in tobacco taxes sparked a wave of brokerage downgrades and renewed concerns over demand and profitability.
The stock fell as much as 5.1% on Friday, hitting its lowest level since February 2023 and extending a nearly 10% decline over two sessions. At least 11 global brokerages, including Goldman Sachs, JPMorgan Chase, Morgan Stanley and Jefferies, cut their ratings on the stock following the government’s move to raise excise duties on cigarettes, said a Bloomberg Report.
Jefferies Financial Group downgraded ITC to hold from buy, calling the levy increase a “big tax shock” that could keep the stock under pressure in the near term.
Under the revised structure, cigarettes will face higher excise duties ranging from ₹2,050 to ₹8,500 per 1,000 sticks starting February 1, according to a government notification issued late Wednesday.
Demand Risks Rise as Price Hikes Loom
Most analysts expect cigarette makers to pass on part of the higher tax burden through price increases, a move that could hurt volumes. Morgan Stanley estimates that cigarette prices may need to rise by as much as 40% to fully offset the impact of higher levies — a level likely to dent consumer demand.
Industry bodies have also warned that steeper taxes could fuel illicit cigarette trade, further pressuring legal sales and margins. The higher-than-expected tax burden has raised fresh doubts about earnings visibility for Asia’s second-largest cigarette maker.
Sector-Wide Impact
The tax hike rattled the broader tobacco sector as well. Godfrey Phillips India Ltd shares plunged over 20% in two trading sessions, reflecting investor fears of sustained volume pressure across the industry.