Excise duty may derail cigarette volumes, margin; ITC, Godfrey Phillips sink 20% in 2 days
New year 2026 did not kick off on a good note for cigarette makers including ITC and Godfrey Phillips, which took a heavy beating in the first two sessions, thanks to the new excise policy on them.
- Jan 2, 2026,
- Updated Jan 2, 2026 10:41 AM IST
ITC, Godfrey Phillips shares: New year 2026 did not kick off on a good note for cigarette makers including ITC Ltd and Godfrey Phillips India Ltd, which took a heavy beating in the first two sessions, thanks to the new excise policy on them. Extending Thursday's losses, both stocks tumbled 5 per cent on Friday as well, extending the two day fall to 21 per cent.
As per the central excise notification order issued by finance ministry, the union government has revised taxation structure for Cigarettes, applicable from February 1 2026, where in base GST rate moves to 40 per cent from 28 per cent currently; introduced new basic excise duty per 1000 stick; and National Calamity Contingent Duty (NCCD) per 1000 stick remains unchanged.
Shares of ITC dropped 5.11 per cent on Friday to Rs 345.35 on Friday, with its market capitalization slipping below Rs 4.35 lakh crore mark. The stock settled at Rs 363.95 on Thursday, falling nearly 10 per cent for the day. The stock has tumbled 27 per cent from its 52-week high at Rs 471.30, hit a year ago, wiping out nearly 1.57 lakh crore from investors' kitty in a year.
"As per initial understanding, the new excise duty structure (per 1000 sticks) is significantly higher versus current structure, quite contrary to ours and street expectation of a tax neutral structure post transition to the new GST regime," said JM Financial. We await clarity on continuation of NCCD, final quantum of duty which will be implemented and would revisit our estimates or rating."
However, if above duty rates are implemented then we see this as significant negative for ITC as sharp duty hike will negatively impact volumes and meaningfully impact Cigarette EBIT; mix could see deterioration; and concerns on illicit cigarette will also re emerge, it said. For ITC, which was seeing resilient cigarette volume growth in the past few quarters, this levy has the effect of pushing possible catalysts further out, JM adds.
Echoing the same view, Religare Broking said that ITC is set to face near-term margin and volume pressure as the 75-85 mm segment accounts for 16 per cent of its cigarette volumes. Cost in this category may rise by 22-28 per cent, implying a potential price rise of Rs 2-3 per stick to protect margins. However, it sees cigarette demand being inelastic in India historically.
ITC's cigarette portfolio spans multiple segments and the progressive tax structure increases the burden on premium length products. Religare believes that contributions of non-cigarette businesses provide earnings diversification. It sees ITC's pricing power remain resilient in the medium-to-long term. It will reassess earnings and valuations once its outline pricing and strategy.
Godfrey Phillips has a product portfolio including Marlboro, Four Square, Red & White, Cavanders, Focus and others. ITC has Classic, Gold Flake, India Kings, Wills Navy Cut, Insignia, Players, Scissors, Capstan and American Club among its key cigarette brands.
ITC, Godfrey Phillips shares: New year 2026 did not kick off on a good note for cigarette makers including ITC Ltd and Godfrey Phillips India Ltd, which took a heavy beating in the first two sessions, thanks to the new excise policy on them. Extending Thursday's losses, both stocks tumbled 5 per cent on Friday as well, extending the two day fall to 21 per cent.
As per the central excise notification order issued by finance ministry, the union government has revised taxation structure for Cigarettes, applicable from February 1 2026, where in base GST rate moves to 40 per cent from 28 per cent currently; introduced new basic excise duty per 1000 stick; and National Calamity Contingent Duty (NCCD) per 1000 stick remains unchanged.
Shares of ITC dropped 5.11 per cent on Friday to Rs 345.35 on Friday, with its market capitalization slipping below Rs 4.35 lakh crore mark. The stock settled at Rs 363.95 on Thursday, falling nearly 10 per cent for the day. The stock has tumbled 27 per cent from its 52-week high at Rs 471.30, hit a year ago, wiping out nearly 1.57 lakh crore from investors' kitty in a year.
"As per initial understanding, the new excise duty structure (per 1000 sticks) is significantly higher versus current structure, quite contrary to ours and street expectation of a tax neutral structure post transition to the new GST regime," said JM Financial. We await clarity on continuation of NCCD, final quantum of duty which will be implemented and would revisit our estimates or rating."
However, if above duty rates are implemented then we see this as significant negative for ITC as sharp duty hike will negatively impact volumes and meaningfully impact Cigarette EBIT; mix could see deterioration; and concerns on illicit cigarette will also re emerge, it said. For ITC, which was seeing resilient cigarette volume growth in the past few quarters, this levy has the effect of pushing possible catalysts further out, JM adds.
Echoing the same view, Religare Broking said that ITC is set to face near-term margin and volume pressure as the 75-85 mm segment accounts for 16 per cent of its cigarette volumes. Cost in this category may rise by 22-28 per cent, implying a potential price rise of Rs 2-3 per stick to protect margins. However, it sees cigarette demand being inelastic in India historically.
ITC's cigarette portfolio spans multiple segments and the progressive tax structure increases the burden on premium length products. Religare believes that contributions of non-cigarette businesses provide earnings diversification. It sees ITC's pricing power remain resilient in the medium-to-long term. It will reassess earnings and valuations once its outline pricing and strategy.
Godfrey Phillips has a product portfolio including Marlboro, Four Square, Red & White, Cavanders, Focus and others. ITC has Classic, Gold Flake, India Kings, Wills Navy Cut, Insignia, Players, Scissors, Capstan and American Club among its key cigarette brands.