ITC To Benefit From Stable Cigarette Tax Outlook In Medium Term, Analysts Say

ITC Ltd. will likely benefit from stable taxation outlook for cigarettes in the medium term, according brokerages. Its strong business fundamentals are also likely to support its growth in coming quarters.

The Government of India announced no tax hikes for cigarettes in the budget for financial year 2025–26, allaying fears of such increases in near future and reflecting future policy outlook, according to Morgan Stanley. Over the medium-term, the brokerage expects moderate tax environment for tobacco products moving forward.

Tobacco tax rates fall under GST Council's purview. These tax rates are earmarked till March 2026, providing 12–15 months of stable taxation outlook for ITC, Jefferies said.

In this backdrop, ITC is expected to achieve low single digit volume growth in the medium term, according to Morgan Stanley. The brokerage also points that re-rating factor will likely be in play.

Jefferies sees ITC as a natural beneficiary in general, with no tobacco tax hike announced in the budget and expectation of consumption improvement due to personal income tax reforms. ITC now can focus on volume growth with modest price hikes, which is expected to support overall business growth.

Jefferies expects ITC to post 6% and 7% cigarettes EBIT growth, respectively in the financial year 2025 and 2026. The stock is trading at 26 times one-year forward private equity, which seems reasonable. The brokerage kept a 'buy' rating.

ITC's management favoured cigarette volumes and portfolio premiumisation with minor price hikes. These factors supported ITC to deliver 10%, 14%, and 13% compound annual growth rate in cigarette volumes, revenue, and EBIT for financial year 2022, 2023, and 2024, Morgan Stanley said.

Morgan Stanley said tax hike on tobacco products are inevitable in medium term, which will be moderate and less frequent. The Government of India has realised the need to achieve a balance revenue maximisation and tobacco consumption reduction, the brokerage said.