UBS has maintained its buy rating on ITC but cut its target price to ₹430 from ₹490, citing the introduction of additional excise duty on cigarettes, which is expected to create near-term uncertainty around pricing actions, volume impact and earnings growth.
According to UBS, the newly levied excise duty has increased uncertainty over how much of the tax increase will be passed on immediately versus staggered over time, and how consumers may respond to higher cigarette prices. The brokerage cautioned that this uncertainty could weigh on cigarette volumes and EBIT growth in the coming quarters, particularly as pricing decisions unfold across brands and formats.
UBS acknowledged that the prospect of a sharp revival in earnings growth has weakened in the near term due to the tax increase. However, it highlighted that current market expectations already appear conservative, with the stock now pricing in sustainable cigarette EBIT growth of just 2–3%, ceteris paribus. In UBS’s view, this assumption underestimates ITC’s historical ability to navigate high-tax environments while protecting profitability.
The brokerage pointed out that ITC has successfully delivered sustainable EBIT growth even during periods of elevated taxation, supported by its dominant market position, brand strength, calibrated price increases and cost discipline. UBS believes that while near-term volatility is likely, ITC’s long-term earnings resilience remains intact, particularly as the company balances pricing with mix improvements and operational efficiencies.
UBS also noted that the company’s diversified earnings base, including FMCG, paperboards and agri-business, provides a buffer against near-term cigarette volatility. Over the medium term, UBS expects ITC to gradually recalibrate pricing and stabilise volumes, supporting earnings normalisation once the initial disruption from the tax hike subsides.
Despite trimming its target price to reflect near-term uncertainty, UBS continues to see favourable long-term risk-reward, supported by ITC’s strong cash generation, balance sheet strength and proven execution through regulatory cycles.
Disclaimer: The views and recommendations above are those of UBS. Business Upturn does not endorse them. Please consult a financial advisor before making investment decisions.
