Multinational brokerage Goldman Sachs has reduced the target price on ITC Ltd. to Rs 330 from Rs 385, expecting lower-than-projected earnings and a cut in the earnings multiple for the cigarette business. The new target implies a return potential of 14% over the previous close.
The lower multiple also factors in increased uncertainty around cigarette taxation, especially after the sharp tax hike in February, which followed a five‑year period of stable taxes that had supported predictable volume growth, analysts said in a note.
The firm has maintained its 'Neutral' rating on ITC, citing near‑term margin pressures and regulatory uncertainty, despite the company's strong market position and diversified business portfolio.
Goldman Sachs has highlighted that ITC is adopting a calibrated approach to cigarette price increases following the sharp tax hike announced by the government, rather than implementing a one‑time hike. Based on channel checks, ITC has already taken the first round of price increases in the cigarette segment, ranging between 20% and 40% across key brands.
However, these hikes are lower than what would be required to fully offset the cigarette tax increase that came into effect on Feb. 1. As a result, ITC is likely to absorb part of the tax burden, leading to a decline in EBIT per cigarette stick.
The brokerage has lowered its earnings estimates to reflect a larger‑than‑expected impact on cigarette margins, along with rising input costs affecting FMCG margins due to higher crude oil prices. Analysts now expects the cigarette EBIT decline to be sharper than earlier assumptions and has reduced FY27 and FY28 earnings estimates by around 6% and 3%, respectively.
ITC Share Price Movement
Shares of ITC traded flat on the NSE compared to 0.7% advance in the benchmark Nifty as of 10:55 am. The stock is down 28% on a year-to-date basis.
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Fifteen out of the 39 analysts tracking ITC have a 'buy' rating on the stock, 15 recommend a 'hold' and nine suggest a 'sell', according to Bloomberg data. The average of 12-month analyst price targets is Rs 362, which implies a potential upside of 25%.
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