It was a terrible start for ITC, one of India’s largest conglomerates, on the exchanges on the very first day of 2026. Shares of ITC Ltd. fell to the lowest level in nearly three years after the government notified the hike in excise duty on cigarettes and other products.
With the magnitude of the tax impact being significantly higher than earlier estimates, ITC shares fell 9.7% to end at Rs 363.90 on Thursday on the BSE. In the Nifty50 index, ITC emerged as the biggest loser. This was the sharpest single-day fall for ITC since March 2020 when the global equity market was hit by the Covid-19 pandemic.
Shares of Godfrey Phillips India, the distributor of Marlboro in India, nose-dived 17% to Rs 2,280. Market experts believe that the proposed new tax increase on cigarettes is likely to impact ITC’s operating margin and volume. The current tax structure of 28% GST and ad valorem cess between 5%-36% will be replaced by a 40% GST and a rise in excise duty.
Analysts at Religare Broking stated that ITC is set to face near-term margin and volume pressures following the government's notification of a new excise duty on cigarettes, effective February 1, 2026. This follows the passage of the Central Excise (Amendment) Bill, 2025, which replaces the earlier temporary levy with a formalised excise structure.
The revised duty ranges from Rs 2,050 to Rs 8,500 per 1,000 sticks, based on cigarette length, with higher taxes on longer sticks. “For ITC, the impact is most pronounced in the 75-85 mm segment, which accounts for 16% of cigarette volumes. Costs in this category could rise by 22-28%, implying potential price hikes of Rs 2-3 per stick to protect margins,” said Religare.
Cigarettes are ITC’s most profitable segment. Despite diversification into FMCG, hotels, and many other ventures, a large portion of ITC’s operating profit still comes from cigarettes.
Nuvama Institutional Equities said while it expected a sharp tax hike on cigarettes, the magnitude seemed higher than anticipated, likely prompting consensus downgrades to ITC’s cigarette volume and EBITDA estimates as well as multiples.
“Pending clarity, we reckon a more than 20% price hike and a more than 30% tax hike, which is meaningfully sharp…Overall, we are cutting EBITDA by 7 per cent each for FY27E/28E. Downgrade to ‘Hold’ from ‘Buy’, cutting our Tobacco PE valuation to 17x (earlier 23x)...,” it added.