Shares of cigarette-making companies surged sharply on Wednesday following a price revision taken to offset the impact of higher taxes. ITC shares gained 2.2% to close at Rs 332.70 apiece while Godfrey Phillips India shares rallied 20 % to settle at Rs 2,478.8 apiece. VST Industries shares also advanced more than 2% on Wednesday.
As per industry estimates, Godfrey Phillips India has hiked the price of Marlboro Compact from Rs 9.5 per stick to Rs 11.5 per stick while prices for ITC's Gold Flake and Classic (Premium) has been increased by 41%, Classic Connect (Slims) by 20% and Gold Flake Superstar (Value) by nearly 19%.
Cigarette stocks had come under severe selling pressure since the beginning of the year following the government's notification of a new excise duty. This followed the passage of the Central Excise (Amendment) Bill, 2025, which replaced the earlier temporary levy with a formalised excise structure.
Effective February 1, 2026, the government increased taxes on cigarettes, imposing a 40% GST along with a new, higher length-based excise duty ranging from Rs 2,050 to Rs 8,500 per 1,000 sticks. This new structure replaces the previous 28% GST and compensation cess, aiming to curb consumption. The changes have led to substantial price hikes of 15% to 40% per pack.
Vinod Nair, Head of Research, Geojit Investments, said that cigarette stocks have staged a strong rebound after companies implemented decisive price hikes to pass on the recent tax increases. Nair added that the recovery comes after last month’s sharp correction, when the duty hike led to broad-based selling across the sector, and with pricing adjustments now in place, near-term margin pressures appear more manageable.
“December-quarter results indicate that the earlier weakness was largely tax-driven rather than reflective of any structural slowdown in demand. While higher retail prices could temporarily weigh on volumes, cigarette companies have historically displayed strong pricing power, allowing them to protect profitability even in elevated tax regimes. The recent valuation correction may therefore present selective opportunities for investors, particularly in companies capable of sustaining margins and earnings through calibrated price actions,” stated Nair.
Meanwhile, global brokerage firm UBS has issued a bullish call for ITC shares, stating that the valuation now appears to be appealing after the recent correction. UBS kept a 'Buy' call on the shares of ITC, but cut its target price to Rs 395 apiece from Rs 420 apiece.