ITC shares fall 3% to fresh 52-week low; Motilal Oswal sees more pain ahead

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ITC shares dropped to a fresh 52-week low of Rs 275.50 apiece on NSE in the morning trading hours of Wednesday. The stock is currently among the top losers on Sensex and Nifty, following the IT stocks, which crashed up to 7%.

Motilal Oswal Financial Services, in its latest note, highlighted that the cigarette industry is witnessing one of its most disruptive regulatory resets after the implementation of GST 2.0, effective from February 1, 2026. The revised taxation framework has resulted in around 60-65% surge in cigarette taxes for ITC, implying the need for around 35% hike in MRPs (at historical mix), it further said, adding that this was the steepest hike seen historically and a sharp departure from the largely stable tax regime maintained during 2018-25.

The domestic brokerage highlighted that the transition has also been unusual due to the one-month gap between the announcement (January 1) and the implementation (February 1), compared to the typical immediate or near-immediate execution seen historically. To tackle the high taxes, ITC has adopted a calibrated and phased price hike strategy instead of taking an upfront full tax pass-through, with the objective of limiting the shift toward illicit cigarette markets and retaining market share among legal players, it added.

Motilal believes the current phase can be viewed in two stages. The first stage represents a transitionary adjustment period wherein ITC is gradually taking price increases to eventually reach tax-neutral levels. The second stage, according to the brokerage, is likely to emerge once the full tax increase is absorbed into retail prices and the competitive equilibrium between legal and illicit trade stabilises.

“We expect volatility in cigarette volumes and EBIT to moderate from the initial transitionary phase. In this normalized phase, ITC’s product portfolio, innovation pipeline, and premiumization strategy will play a critical role in rebuilding the growth momentum and defending its market positioning. Given the MRP revisions are still underway, the outlook for ITC’s cigarette business remains uncertain. We do not rule out any possibility for further earnings cuts. That said, the extent of consumer acceptance for revised prices will be a key monitorable. We model 15% revenue decline and 19% dip in EBIT in the cigarette business in FY27,” the domestic brokerage said.

Meanwhile, ITC’s non-cigarette business continues to exhibit structural improvement, according to Motilal, which sees FMCG as a key growth driver. “Positive catalysts such as improving FMCG performance and paperboard margin normalization are overshadowed by the cigarette earnings headwind stemming from illicit competition, constrained pricing flexibility, and the inevitable volume-versus-margin trade-off that defines ITC’s near-term trajectory,” it added.
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Also read: Cigarette business weakness drags ITC margins in March quarter

The domestic brokerage highlighted that recent tax hikes could weigh on ITC’s near-term volume, keeping growth subdued. It expects cigarette volume to decline 10% in FY27 and to remain flat in FY28. On the EBIT front, the high price differential after the tax increase constrains pricing flexibility, making it challenging to drive earnings growth, it added.

“We model 15% revenue decline and 19% dip in EBIT in the cigarette business for FY27. We model a negative EBIT CAGR of ~8% for the cigarette segment over FY26-28E,” Motilal said, adding that competitive pressure from illicit cigarettes will weigh on the formal cigarette industry.

The domestic brokerage has a ‘Neutra;’ rating for the shares of ITC, with a target price of Rs 300 apiece, implying an upside potential of nearly 6% from the stock’s previous closing price of Rs 283.25 apiece on NSE.

ITC shares have fallen more than 5% in one week, 12% in one month and around 24% so far in 2026. The stock is down more than 33% in one year. In the longer term, ITC shares fell more than 37% in three years but gained over 32% in five years.

Also read: Why stock market is crashing today?

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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