Shares ofITCcontinued to slide for the second consecutive session, dropping4.1% to ₹348.80on the Bombay Stock Exchange (BSE) on Thursday morning. The stock had already fallen nearly10% in the previous session, taking its two-day decline to around13%.

The sharp sell-off follows theFinance Ministry’s revision of the cigarette taxation structure, which will come into force fromFebruary 1, 2026. Under the new regime, theGST rate on cigarettes has been increased to 40% from 28%, anew basic excise duty per 1,000 stickshas been introduced, and the earlier cess-based structure has been removed. TheNational Calamity Contingent Duty (NCCD)remains unchanged.

According toJM Financial, the revised excise framework is significantly higher than the existing regime and deviates from expectations of a tax-neutral transition under GST. On a blended basis, the brokerage estimates a40–50% rise in excise duty and overall tax per cigarette stick, potentially forcing ITC to raise maximum retail prices (MRPs) by20–40% or moreto offset the impact.

The tax increase is uneven across segments. While the impact is relatively limited for cigarettes below 65 mm (around 30% of ITC’s volumes), duty rates have risen sharply for mid-size, long, and king-size filter cigarettes, which together account for a majority of volumes. Analysts warn this could triggerconsumer down-trading, product-mix deterioration, and a resurgence of illicit cigarette sales.

JM Financial also highlighted a cascading effect, as40% GST will now be applied on MRP rather than net sales value, further intensifying the impact on profitability. If implemented as notified, the brokerage expectsvolume pressure, a meaningful hit to cigarette EBIT, and delayed earnings recovery.

Religare Brokingsaid the new excise regime may weigh on near-term sentiment and profitability, but noted that ITC’s strong pricing power and diversified businesses could support medium-to-long-term resilience.

Meanwhile,Motilal Oswaldowngraded ITC toNeutral, calling the tax hike “unprecedented.” The brokerage set atarget price of ₹400, implying about10% upside, but warned that steep price increases could push consumers toward illicit brands. Motilal Oswal has factored in a6% EBIT contraction in FY27and trimmed earnings estimates for FY27 and FY28.

With clarity still awaited on final implementation and possible revisions, analysts believeITC’s pricing strategy over the next few months will be crucialin determining the extent of the impact on volumes and margins.