ITC shares hit 3-year low after excise shock; should investors buy the dip?

ITC Ltd shares extended their sharp decline for the second straight session on Friday, January 2, after the government imposed additional excise duty on cigarettes. The move triggered heavy selling across tobacco stocks.

ITC shares fell as much as 5.1 per cent to a low of Rs 345.25 in early trade, marking a fresh three-year low. The stock later recovered some losses. At around 11:18 am, ITC was trading at Rs 349.70 on the NSE, down Rs 14.15 or 3.89 per cent.

Steep correction in a short time

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The stock has fallen sharply in recent sessions. ITC has declined nearly 14 per cent in just five trading days. Over the past one month, the stock is down more than 13 per cent. In the last six months, it has corrected over 15 per cent. On a one-year basis, ITC shares have fallen close to 30 per cent.

The sharp fall comes amid concerns that higher cigarette taxes will hurt volumes and profitability in the near term.

What triggered the sell-off

The government announced a significant increase in excise duty on cigarettes. The tax hike varies by cigarette length and is steeper for longer cigarettes. Brokerages say companies may need to take sharp price hikes to protect margins, which could impact demand.

There are also concerns over consumer downtrading to cheaper variants and a possible rise in illicit cigarette consumption.

ITC Share: Brokerages turn cautious

Brokerages have cut targets and downgraded the stock, citing weaker growth visibility.
UBS has maintained a Buy rating on ITC but cut its target price to Rs 430 from Rs 490. The brokerage said the additional excise duty will weigh on the stock and create uncertainty. It added that current prices are factoring in cigarette EBIT growth of just 2 to 3 per cent, which appears conservative.

Macquarie has maintained an Outperform rating with a target of Rs 500. It said maintaining EBIT per stick would require price hikes of 10 to 35 per cent across cigarette categories. While moderating leaf tobacco costs may offer some support, the brokerage flagged concerns on near-term growth due to higher taxation.

JP Morgan downgraded ITC to Neutral from Overweight and cut its target to Rs 375 from Rs 475. It said early estimates suggest a weighted average price hike of over 25 per cent would be needed, depending on whether NCCD is removed. The brokerage warned of risks of downtrading, higher illicit sales and pressure on volumes, which could cap upside over the next 6 to 9 months.

Jefferies downgraded the stock to Hold from Buy and reduced its target to Rs 400 from Rs 535.
Nuvama also downgraded ITC to Hold from Buy and cut its target to Rs 415 from Rs 534. It said the magnitude of the cigarette tax hike was higher than expected and could lead to consensus downgrades to volume, EBITDA and valuation multiples.

ITC share: Buy, hold or sell?

Most brokerages agree that the sharp tax hike weakens ITC’s near-term earnings outlook. While valuations have corrected sharply, visibility on volume growth and pricing remains limited.

For existing investors, many analysts suggest a Hold approach until there is clarity on tax structure, pricing actions and demand trends. For fresh investors, brokerages indicate that patience may be required, as stock performance could remain under pressure in the coming quarters despite long-term fundamentals.