Nuvama Institutional Equities has downgraded ITC to ‘Hold’ from ‘Buy’, citing a sharper-than-expected increase in cigarette taxation, which is likely to pressure volumes, margins and valuation multiples.
In its latest note, Nuvama said that while a tax hike on cigarettes was anticipated, the magnitude has turned out to be meaningfully higher than expected. Pending clarity, the brokerage now estimates a price hike of over 20% and a tax hike exceeding 30%, which it termed as significantly steep.
As a result, Nuvama has cut its EBITDA estimates by 7% each for FY27E and FY28E, reflecting expected weakness in the cigarette business. The brokerage has also reduced its tobacco valuation multiple to 17x from 23x earlier, leading to a sum-of-the-parts based target price of Rs 415.
Nuvama warned that such sharp hikes historically lead to volume declines of 3–9%, and a double-digit tax increase could also push consumers toward illicit and smuggled cigarettes, impacting legal industry volumes.
The brokerage, however, noted that with the tax changes effective from February 1, January sales and production could see a spike, limiting the immediate impact on Q4 FY26, though FY27 volumes and EBITDA are likely to decline.
