Cigarette stocks lit up Dalal Street on Wednesday after reports that manufacturers had raised prices to counter higher tax outgo. Shares of ITC Ltd, Godfrey Phillips India Ltd and VST Industries Ltd climbed by as much as 15%, following media reports that companies have implemented price hikes to pass on the impact of the recent excise duty increase to consumers. As of 1:15 pm, Godfrey Phillips India Ltd was trading at 2,386, up 318 points or 15.4%. At the same time, ITC gained 2% to 331 while VST Industries Ltd strengthened to 244, adding 2%. The move by cigarette makers is seen as a step to protect margins, with the expected decline in EBIT now projected at around 2%, sharply lower than earlier estimates of 8–15%. The changes follow the government’s notification on February 1 ending the GST compensation cess and introducing a new tobacco taxation framework.ITC Ltd is likely to increase cigarette prices by 20–40% across brands. Fresh shipments reflecting the revised pricing are expected to reach the market soon, while retailers are also said to be selling existing inventory at higher rates. Market reaction was swift. ITC Ltd climbed 2% to Rs 331 during the session, extending its gains to a third straight day and taking its cumulative rise over three sessions to about 5.5%. Godfrey Phillips India Ltd jumped 12% to Rs 2,315 per share on the BSE, marking a more than 15% gain over two days. VST Industries Ltd also traded higher, advancing 3.3% in morning deals.The new taxation structure has reset excise duties on cigarettes to between Rs 2,050 and Rs 8,500 per 1,000 sticks, alongside a 40% GST. The revised regime has materially increased the overall tax burden, leading to concerns around demand trends, margins and the possibility of greater illicit trade.The Budget also introduced a technical change to the National Calamity Contingent Duty (NCCD). The statutory NCCD rate on tobacco products has been raised from 25% to 60%, effective May 1, 2026. At the same time, it was clarified that the effective duty rate will continue at 25% through a notification, meaning there is no immediate increase in tax outgo for cigarette companies. In effect, while the duty remains unchanged for now, the government has enabled a future increase without requiring another amendment to the law.In the December quarter, ITC, the country’s largest cigarette manufacturer, reported revenue growth of 6.2% year-on-year. The performance was supported by double-digit expansion in its FMCG-Others business and steady momentum in cigarettes. Cigarette revenues rose 8%, driven by 7% growth in volumes.However, margins in the cigarette segment fell to 59.9%, a multi-quarter low, contracting by 163 basis points year-on-year due to the consumption of high-cost leaf inventory. Management indicated that leaf procurement prices have moderated in the current crop cycle, which could help support margins in the coming quarters.
