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Shares of ITC Ltd. were downgraded by brokerage firms Nomura, Morgan Stanley, JPMorgan, Jefferies, Motilal Oswal, Kotak Institutional Equities, and Nuvama on Friday, January 2, after the cigarette excise duty hike notification which came in on Thursday, the first day of 2026.
The stock is now down to a three-year low, with over ₹70,000 crore in market capitalisation lost.
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.
JPMorgan has also downgraded ITC to "neutral" from its earlier rating of "underweight" and cut its price target to ₹375 from ₹475 earlier.
The brokerage said that the downgrade comes after the sharp tax hike, which it expects the company to largely pass on the impact. However, that will impact the company's volume and earnings growth, thereby weighing on the stock multiples, restricting upside from current levels over the next six to nine months.
ITC may have to hike prices between 25% to 35% to ensure net rationalization per stick remains unchanged, subject to the NCCD staying or not.
UBS has also cut ITC's price target to ₹430 from ₹490 but maintained its "buy" rating on the stock. UBS wrote in its note that the duty hike is likely to weigh on the stock price and create uncertainty around how much tax increase will be passed on immediately or in a staggered manner, and its impact on cigarette volumes and EBIT growth.
Another downgrade on ITC has come from Jefferies, who has downgraded the stock to "hold" from its earlier rating of "buy" and cut its price target to ₹400 from ₹535 earlier.
Nomura expects a 15% cigarette volume decline for ITC in financial year 2027, while expecting a 14% decline in net cigarette sales, thereby impacting the segment EBIT by 17% in the next year.
It has cut ITC's EPS estimates by 18% for financial year 2027-2028 and also cut its price-to-earnings estimates for the cigarette business to 16 times from 25 times earlier.
As a result, Nomura has double-downgraded ITC to "reduce" from its earlier rating of "buy" and cut its price target by ₹200 from ₹540 earlier to ₹340.
Morgan Stanley has downgraded the stock to Equalweight from its earlier rating of Overweight, and also cut its price target to ₹366 from ₹469 earlier.
Kotak too has downgraded ITC to "reduce" from its earlier rating of "add" and cut its price target down to ₹350 from ₹480 earlier. It believes that the company will be compelled to raise prices by nearly 35% to remain revenue neutral per stick.
"We cut ITC's cigarette segment valuation by 45% to ₹160 per share from ₹290 per share earlier," the brokerage said.
Shares of ITC are trading 4.5% lower in early trading on Friday at ₹348.7. The stock is now down to the lowest level since January 2023.
Also Read: Cigarette Excise Duty Hike — The estimated financial impact on ITC, Godfrey Phillips explained
The stock is now down to a three-year low, with over ₹70,000 crore in market capitalisation lost.
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.
JPMorgan has also downgraded ITC to "neutral" from its earlier rating of "underweight" and cut its price target to ₹375 from ₹475 earlier.
The brokerage said that the downgrade comes after the sharp tax hike, which it expects the company to largely pass on the impact. However, that will impact the company's volume and earnings growth, thereby weighing on the stock multiples, restricting upside from current levels over the next six to nine months.
ITC may have to hike prices between 25% to 35% to ensure net rationalization per stick remains unchanged, subject to the NCCD staying or not.
UBS has also cut ITC's price target to ₹430 from ₹490 but maintained its "buy" rating on the stock. UBS wrote in its note that the duty hike is likely to weigh on the stock price and create uncertainty around how much tax increase will be passed on immediately or in a staggered manner, and its impact on cigarette volumes and EBIT growth.
Another downgrade on ITC has come from Jefferies, who has downgraded the stock to "hold" from its earlier rating of "buy" and cut its price target to ₹400 from ₹535 earlier.
Nomura expects a 15% cigarette volume decline for ITC in financial year 2027, while expecting a 14% decline in net cigarette sales, thereby impacting the segment EBIT by 17% in the next year.
It has cut ITC's EPS estimates by 18% for financial year 2027-2028 and also cut its price-to-earnings estimates for the cigarette business to 16 times from 25 times earlier.
As a result, Nomura has double-downgraded ITC to "reduce" from its earlier rating of "buy" and cut its price target by ₹200 from ₹540 earlier to ₹340.
Morgan Stanley has downgraded the stock to Equalweight from its earlier rating of Overweight, and also cut its price target to ₹366 from ₹469 earlier.
Kotak too has downgraded ITC to "reduce" from its earlier rating of "add" and cut its price target down to ₹350 from ₹480 earlier. It believes that the company will be compelled to raise prices by nearly 35% to remain revenue neutral per stick.
"We cut ITC's cigarette segment valuation by 45% to ₹160 per share from ₹290 per share earlier," the brokerage said.
Shares of ITC are trading 4.5% lower in early trading on Friday at ₹348.7. The stock is now down to the lowest level since January 2023.
Also Read: Cigarette Excise Duty Hike — The estimated financial impact on ITC, Godfrey Phillips explained
