The price hikes implemented by cigarette makers such as ITC and Godfrey Phillips to mitigate the impact of higher taxes by the government have started to show up in the companies’ sales figures.
A recent report from Informist suggests that cigarette sales have fallen up to 5% in March and are down further in April, with the impact expected to show up in the March quarter numbers.
Cigarette prices have increased by a minimum of ₹22 to 25 per pack of 10 sticks to as much as ₹55 after the government imposed an additional excise duty on cigarettes and tobacco products over and above the highest 40% GST slab rate, effective February 1. The ₹2,050-8,500 per thousand sticks”>excise duty hike is in the range of ₹2,050-8,500 per thousand sticks based on the length and type of the product.
Since the tax hike announcement made at the beginning of the year, cigarette stocks have declined between 10-17%. Industry leader ITC has emerged as the top loser as the Nifty 50 stock is down 17.55% at the ₹300 levels currently. Meanwhile, Godfrey Phillips shares have lost 10%, and VST Industries is down 11%.
Nitant Darekar, Research Analyst at Bonanza, said the sales volumes are estimated to decline 10%, with near-term cigarette segment profit potentially falling 15–20%.
What does it mean for cigarette companies?
Analysts expect a hit on the companies’ margins as they see the price hike to be insufficient to offset the tax impact.
Darekar highlighted that for ITC, cigarettes still contribute over 80% of operating profit, so the earnings hit will be meaningful. However, he expects the company’s diversification into FMCG (brands like Sunfeast, Bingo, and Savlon approaching Rs. 25,000 crore in combined revenue), agribusiness, and paperboards —which account for over 60% of topline — to provide a structural cushion that most tobacco peers lack.
Kotak Institutional Equities said that ITC’s cigarette business in 4QFY26 was affected by the shift to the new tax structure, but the numbers don’t fully reflect actual demand due to some one-time gains in February.
It said the quarter saw mixed trends; January was strong, as dealers stocked up before price hikes, leading to good sales growth. Meanwhile, February was uneven—early in the month saw higher prices and strong sales before hikes, but demand slowed later after prices increased. March was weak due to earlier stocking and lower realisations in key segments, which make up a large part of sales.
The brokerage expects profit growth from cigarettes at around 3% year-on-year (YoY) in Q4FY26, but margins to have declined slightly. This is mainly due to higher raw material costs (like tobacco) and weak demand in March, it said.
However, other players like Godfrey Phillips, by contrast, derive the vast majority of revenue from cigarettes with no comparable non-tobacco vertical, making it significantly more exposed to volume erosion and down-trading, opined the Bonanza analyst, suggesting a more acute impact for these names.
Should investors sell cigarette stocks?
Despite the decline in sales, analysts have a mixed view on whether investors should consider exiting ITC and Godfrey Phillips shares.
Kranthi Bathini of Wealthmills Securities said that any decline in sales will have a direct implication on both the top line and bottom line, but assessing the impact based on just one quarter’s numbers is difficult.
We need to observe at least a couple of quarters to properly gauge how consumer behaviour adjusts to the price increase and higher GST, he said, as these products are largely inelastic in nature.
“From an investment perspective, long-term investors should not react immediately to this development. These companies have historically gone through multiple tax hikes over decades and have continued to survive and grow. A single quarter’s impact is unlikely to materially change their long-term trajectory,” he opined as he advised investors against selling the stock.
Commenting on specific stocks, Darekar said that a blanket exit seems premature for ITC, given the diversification runway, but for Godfrey Phillips, the risk-reward has clearly deteriorated.
He added that “investors in pure-play tobacco names need to weigh this structural headwind seriously” as the regulatory direction on tobacco taxation in India is unlikely to reverse, and cigarettes will only get more expensive.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
