Shares of ITC after falling nearly 10% on Thursday, the FMCG major is under pressure once again on Friday, trading with cuts of more than 3%. This is after the government's announcement of higher excise duty on cigarettes.The stock is currently trading at Rs 350, reaching an intraday low of Rs 345. This compares to Thursday's closing price of Rs 363. On account of this uncertainty, a slew of brokerages have cut the target price on ITC, citing direct impact on volumes. Analysts largely suggested 'Hold' or 'Reduce' on the stock following the development. At 9.20 am, the scrip was trading 4.56 per cent lower at Rs 347.35 apiece.
Emkay Global has cut its rating on ITC to 'Reduce' from 'Add', as it sees the proposed excise duty rates for cigarettes hurting near-to-medium term outlook. This brokerage sugested a target of Rs 350 (Dec-26E) from Rs 475 (Sep-26E), as it cut its earnings estimates to factor in the impact of the tax increases. Morgan Stanley has reportedly cut its target price on ITC to Rs 366 from Rs 469. JPMorgan has cut its target to Rs 375 from Rs 475, Jefferies to Rs 400 from Rs 535, Nuvama Rs 415 from Rs 534 and Nomura to Rs 340 from Rs 540. Echoing similar concerns, UBS said the tax hike is likely to pressure the stock price and create uncertainty around how much of the increase will be passed on immediately versus in a staggered manner. This, in turn, could affect cigarette volumes and EBIT growth in the coming quarters. The firm added that prospects for an earnings growth revival have clearly weakened.
At current levels, the stock appears to be pricing in sustainable cigarette EBIT growth of 2–3% on a ceteris paribus basis. While this assumption seems conservative, given ITC’s history of navigating tax hikes while maintaining steady EBIT growth even during periods of high taxation, it nonetheless reflects near-term caution. Macquarie noted that the estimated price increase required to maintain EBIT per stick for cigarettes longer than 65 mm, which account for a larger share of industry volumes and profits, would be in the range of 20 to 35%. In contrast, the required hike for sub-65 mm entry-level cigarettes is likely to be lower.Over the last two years, ITC shares have declined 17.66%, while over the past year they have fallen 20.50%. In the last one month and three months, the stock has declined by over 10% each.