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Shares of ITC Ltd. were downgraded by brokerage firm Motilal Oswal and Nuvama on Friday, January 2, after the cigarette excise duty hike notification which came in on Thursday, the first day of 2026. Both the brokerages have also cut their respective price targets on the stock.
While Nuvama has downgraded the stock to "hold" from its earlier rating of "buy", it has cut its price target to ₹415 to ₹534 apiece.
Motilal Oswal too, has downgraded ITC to a "neutral" rating from its earlier "buy" recommendation and cut its price target on the stock down to ₹400.
"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," Nuvama wrote in its note.
Motilal Oswal believes that ITC will need to hike prices by at least 25% at a portfolio level, just to maintain the current net realization per cigarette stick.
"Such a sharp tax increase is unprecedented and has surprised us given the backdrop of stable taxes over the last few years," the Motilal Oswal analyst wrote in his note.
Motilal Oswal cited the impact a stable tax regime had on the illicit cigarette market, due to which, ITC's cigarette volumes grew at a Compounded Annual Growth Rate (CAGR) of 5% during the last five years, duly reflecting in the stock price performance as well.
While Nuvama awaites more clarity, it expects ITC to hike prices by nearly 20%, and as a result, it has cut its financial year 2027 and 2028 EBITDA estimates for the stock by 7% each. The brokerage has also cut the valuation multiple for its cigarettes business to 17 times from 23 times earlier.
However, with a strong dividend yield, tobacco raw material costs turning favourable in financial year 2027, a large foods portfolio and expansion of its paper business has ensured Nuvama did not downgrade its rating to "reduce."
Motilal Oswal too, has cut the valuation of ITC's cigarette business to 14 times from 17 times earlier and believes that this earnings pressure takes away the near-term comfort of soft tobacco prices, recovery in FMCG and paper, and the valuation comfort.
Shares of ITC ended 10% lower on Thursday at ₹363.95, at levels last seen in April 2023.
Also Read: Cigarette Excise Duty Hike — The estimated financial impact on ITC, Godfrey Phillips explained
While Nuvama has downgraded the stock to "hold" from its earlier rating of "buy", it has cut its price target to ₹415 to ₹534 apiece.
Motilal Oswal too, has downgraded ITC to a "neutral" rating from its earlier "buy" recommendation and cut its price target on the stock down to ₹400.
"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," Nuvama wrote in its note.
Motilal Oswal believes that ITC will need to hike prices by at least 25% at a portfolio level, just to maintain the current net realization per cigarette stick.
"Such a sharp tax increase is unprecedented and has surprised us given the backdrop of stable taxes over the last few years," the Motilal Oswal analyst wrote in his note.
Motilal Oswal cited the impact a stable tax regime had on the illicit cigarette market, due to which, ITC's cigarette volumes grew at a Compounded Annual Growth Rate (CAGR) of 5% during the last five years, duly reflecting in the stock price performance as well.
While Nuvama awaites more clarity, it expects ITC to hike prices by nearly 20%, and as a result, it has cut its financial year 2027 and 2028 EBITDA estimates for the stock by 7% each. The brokerage has also cut the valuation multiple for its cigarettes business to 17 times from 23 times earlier.
However, with a strong dividend yield, tobacco raw material costs turning favourable in financial year 2027, a large foods portfolio and expansion of its paper business has ensured Nuvama did not downgrade its rating to "reduce."
Motilal Oswal too, has cut the valuation of ITC's cigarette business to 14 times from 17 times earlier and believes that this earnings pressure takes away the near-term comfort of soft tobacco prices, recovery in FMCG and paper, and the valuation comfort.
Shares of ITC ended 10% lower on Thursday at ₹363.95, at levels last seen in April 2023.
Also Read: Cigarette Excise Duty Hike — The estimated financial impact on ITC, Godfrey Phillips explained
