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ITC market cap erodes by ₹63,000 crore as ‘tax shock’ stokes concerns on profitability
Analysts see cigarette prices rising by as much as 40%. That will weigh on demand, as well as profitability of ITC that derives 40% revenue from cigarettes.
India's largest cigarette maker ITC Ltd. wiped out nearly $7 billion (~ ₹63,000 crore) in market capitalisation after the government's cigarette “tax shock” stoked concerns on profitability.
ITC's share price fell as much as 5.11% to ₹345.35—the lowest since February 2023—extending a near-10% slide from the previous session.
That, after at least eleven brokerages, including Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley, downgraded the stock after the government hiked excise duty on cigarettes this week. The stock could see more pressure in the near term on the ‘big tax shock”, Jefferies wrote in a note, downgrading the stock to hold from buy.
Cigarette tax in India
From 1 February 2026, cigarettes will be charged an excise duty of ₹2,050-8,500 per 1,000 sticks, as per length, according to a government notification released late Wednesday. That's on top of GST at 40% on tobacco-based products and cigarettes—also kicking in from 1 February.
- ITC might need to hike prices by “at least 15%” to pass on the overall impact to consumers, if not higher, Jefferies said.
- Morgan Stanley said cigarette prices may need to rise by as much as 40% to fully pass on the impact of higher tax to consumers.
Analysts expect the price hike to weigh on demand as well as profitability in the near-term. ITC gets more than 40% of its revenue from cigarettes. At 25.3 crore people, India has the second-highest population of tobacco users in the world.
“We believe the share price reaction already reflects the impact, but stock outperformance could return only once the market is convinced that the volume slowdown has bottomed out,” the analysts wrote in a note.
The cigarette tax math, explained
From 1 February, tobacco products—including pan masala and cigarettes—will be taxed at 40% GST but bidis (rolled tobacco leaves) will attract 18% GST. On top of this, a cess will be levied on pan masala, while tobacco and related products will attract additional excise duty.
On 22 September 2025, the Narendra Modi government cut GST rates on soaps to small cars in the biggest indirect tax reforms since goods and services tax first came into effect on 1 July 2017.
The rationalisation reduced the number of GST slabs to two (5% and 18%) from four (5%, 12%, 18% and 28%). A new GST slab of 40% was introduced for so-called sin goods—tobacco products and luxury items such as SUVs to Swiss watches and handbags.
The GST compensation cess was scrapped as part of the overhaul, which would have reduced the effective tax rate on tobacco products, but now an even higher excise duty has replaced it. The taxation is expected to make up the shortfall in GST revenue from other product categories.
