Daijiworld Media Network - Mumbai

Mumbai, Mar 20: The cigarette industry is facing pressure following recent tax-driven price hikes, with shares of ITC Limited declining amid concerns over demand and profitability.

The stock has fallen around 5 per cent since early February and over 15 per cent since the start of the year, as the company, along with Godfrey Phillips India, implemented significant price increases due to higher excise duty and Goods and Services Tax (GST).

According to a note by Morgan Stanley, ITC has raised cigarette prices by 20–40 per cent across categories, with premium segments witnessing steeper hikes.

To offset potential volume impact, ITC is reportedly exploring the introduction of shorter-length cigarettes, which typically fall under lower tax brackets. Market checks suggest these products could resemble popular variants in the premium segment.

Morgan Stanley noted that consumer acceptance of higher prices will be crucial in determining the company’s ability to sustain further hikes. The full impact of recent tax increases is expected to be reflected more clearly in the first half of FY27.

The brokerage highlighted that ITC’s staggered pricing strategy aims to balance margins while protecting market share, though it may weigh on near-term earnings.

Maintaining an ‘equal-weight’ rating, Morgan Stanley has set a target price of ?346 for ITC, indicating a potential upside of around 13 per cent from current levels.