ITC share price extends losses, falls 5% to hit 52-week low on higher tobacco tax - Should you still buy?

ITC share price fell over 5% on Friday, January 2, sliding to a 52-week low of ₹345.35, after the government announced a fresh excise duty on tobacco products, effective February 1. This comes after a 10% decline in the previous session.

As per a Finance Ministry notification issued late on December 31, cigarettes will attract an excise duty in the range of ₹2,050 to ₹8,500 per 1,000 sticks, depending on cigarette length. The new levy will be imposed in addition to the existing 40% GST applicable on cigarettes, tobacco and similar products from February 1.

The tobacco stock has shed 25% in last 1 year, 16% in past 6 months, 14% in last 3 months and 13% in last 1 month.

The excise hike is expected to significantly raise costs for certain categories. Analysts at ICICI Securities said the revised duty translates into a 22%–28% increase in overall costs for 75–85 mm cigarettes. They noted that cigarettes longer than 75 mm account for about 16% of ITC’s volumes and are likely to see price hikes of ₹2–3 per stick to offset the higher tax burden.

Following the sharp stock reaction, ICICI Securities, which had earlier recommended a long position in ITC January futures, advised investors to close their positions at current levels, stating that the stop-loss had been triggered.

Should you still buy?

Religare said ITC is likely to face near-term pressure on margins and volumes following the government’s notification of a new excise duty on cigarettes, effective February 1, 2026. The brokerage noted that the move comes after the passage of the Central Excise (Amendment) Bill, 2025, which replaces the earlier temporary levy with a formalised excise structure.

According to Religare, the revised excise duty ranges from ₹2,050 to ₹8,500 per 1,000 sticks, depending on cigarette length, with higher taxes imposed on longer sticks. The impact is expected to be most pronounced in the 75–85 mm segment, which accounts for around 16% of total cigarette volumes. Religare said costs in this category could rise by 22–28%, potentially necessitating price hikes of ₹2–3 per stick to protect margins.

The brokerage added that ITC’s cigarette portfolio spans multiple segments — including below 65 mm, 65–74 mm, 75–85 mm and king-size — and the progressive tax structure increases the burden on premium-length products.

While the duty hike may weigh on near-term earnings due to price-led volume moderation and margin absorption, Religare highlighted that cigarette demand in India has historically remained inelastic. Over time, ITC is expected to mitigate the impact through calibrated price increases, optimisation of product mix, cost efficiencies and scale benefits. In addition, the growing contribution from non-cigarette FMCG, hotels and agri-business segments provides earnings diversification.

Overall, Religare said the new excise regime may affect near-term profitability and sentiment, but ITC’s strong pricing power and diversified business model should support medium- to long-term earnings resilience. The brokerage added that it will reassess earnings assumptions and valuation after the company outlines its pricing and mitigation strategy.