ITC shares: Cigarette price hikes at 30%; volume fall may not be sharp, says Nomura

Nomura in its latest note said ITC Ltd had begun implementing cigarette price hikes, but the increases were lower than the brokerage’s expectations for most brands. As a result, Nomura said volume decline “may not be as sharp,” though margins and growth could be impacted more than previously anticipated.

The foreign brokerage retained its 'Reduce' rating on ITC with an unchanged target price of Rs 318 apiece. The brokerage said that while lower-than-expected price hikes could cushion volumes, Ebit margins and growth were likely to be impacted more than earlier expected if ITC did not implement further price increases during the year.

Nomura valued ITC on a sum-of-the-parts basis and forecast a flat earnings per share compound annual growth rate over FY26-28F.

“Our target price of Rs 318 implies a P/E of 20x on Dec-27F EPS,” it said. Key upside risk cited is stronger-than-expected volume growth. ITC has been the worst-performing BSE200 stock, falling 20 per cent in 2026 so far.

Nomura said most price hikes were at around 30 per cent, compared with its expectation of 35-40 per cent, following the sharp tax hike of 40-45 per cent effective from February 1. Nomura noted that portfolio-level actions had made ITC more competitive, but cigarette Ebit margin and growth were likely to decline more than expected.

Nomura said ITC had initiated cigarette price hikes across its premium brands, including Gold Flake and Classic, spanning most subsegments by length. “Price hikes taken thus far appear to be lower than expected, at c.30% vs our expectation of 35-40%, required to maintain its sales realization per stick and EBIT per stick,” the brokerage said.

Nomura said cigarette Ebit margin and growth could decline 20 per cent, compared with its earlier expectation of around 15 per cent, if ITC did not undertake another round of price hikes later in the year. Nomura said ITC might be implementing price increases in stages to cushion the impact of a likely sharp volume decline, given the magnitude of the tax hike.

Nomura said ITC was using portfolio strategies, including “shrinkflation,” to mitigate expected volume decline. The company launched a new Gold Flake variant in a smaller Deluxe size of 64 mm, priced similarly to the Regular 69 mm variant at Rs 94 for 10 sticks.

According to the brokerage, this could help capture volume migration from Regular to Deluxe variants while resulting in higher Ebit per stick compared with other Deluxe brands, though still slightly lower than the Regular size. Nomura also noted that ITC had raised prices by 32 per cent in one Gold Flake Regular variant to Rs 125 for 10 sticks from Rs 95 earlier. It said the extent of the price hike for the Gold Flake Super Star Deluxe variant, currently priced at Rs 59 for 10 sticks, remained to be seen.

Nomura said Godfrey Phillips India had raised prices by 90 per cent for its fast-growing Stellar Shift brand in the Kings Slims segment to Rs 19 per stick. This placed it in competition with ITC’s premium brand Classic Connect, which had seen a price hike of around 30 per cent to Rs 19.50 per stick.

The brokerage said this shift in focus from volumes to margins could reduce competition among legal players in the Slims segment, though illicit and imported brands remained a challenge, selling at Rs 10-15 per stick.