Big Cigarette Price Hike Coming As New Tobacco Duties Push ITC Into Tight Spot

Brokerages Jefferies and Emkay have flagged a potentially sharp price hike cycle at ITC as fresh tobacco duties kick in, warning of pressure on volumes and heightened risk from illicit trade.

Jefferies said the government has notified a sharp rise in excise duty on cigarettes as the compensation cess period nears its end. Its calculations indicate that the overall tax hike could exceed 30% if NCCD continues, and even if NCCD is subsumed, the impact would still be well above 20%.

Jefferies also pointed out that the GST rate on tobacco has recently been raised to 40%, which will have a cascading impact when ITC increases prices. Based on its estimates, ITC may need to raise prices by at least 15% — if not higher — to fully pass on the hit to consumers. It added that while the final outcome is still unclear, if confirmed, the change would be a clear negative as volumes may be impacted and concerns about losing share to the illicit industry could re-emerge.

Emkay echoed the alarm, saying that substantial duty hikes will require 20–40% price hikes across slabs.

Emkay noted that the WHO recommends tobacco taxation at 75% of MRP. India earlier taxed at 53% of MRP, and with the new excise increases at current MRPs, tax payout now rises to 73% of MRP. Based on its scenario analysis, Emkay estimates around 20% price hikes needed in DSFT, 35% in RSFT, and close to 40% in LSFT and KSFT.

It expects ITC to fully pass on the tax burden, a move that could again push illegal volumes higher, after having fallen from 28% in CY20 to 23% now.

Trade channels, Emkay added, had already started adjusting ahead of the move, with KSFT selling price taken to Rs 20 from Rs 18 earlier. With the latest hike, it expects another leg of increases and “guesses it would be Rs 25.”

On impact across companies, Emkay said ITC and Godfrey Phillips are likely to be hit harder, while VST Industries may see relatively lower impact due to its DSFT-heavy portfolio. Over time, it expects ITC to regain share from GPI in DSFT, while GPI could lose share in RSFT.

Together, both brokerages signal the same message: ITC faces a major taxation-led price reset, with double-digit price hikes in the offing, looming volume pressure, and a renewed threat from illicit trade channels if consumers down-trade.