ITC shares climb 4% as resilient cigarette volumes ease tax-hike concerns

ITC shares climbed 4% on Monday to their highest level in over a month, as brokerages reported that higher cigarette volumes indicated the worst effects of a recent tax hike may be tapering off. Analysts noted that phased price increases could boost profitability in upcoming quarters. The stock surged up to ₹292.55, its peak since June 23.

ITC, a major player in consumer goods and cigarette brands like Gold Flake and Classic, reported a 27% drop in quarterly profit on Friday to ₹3,579 crore ($375.24 million). However, stronger-than-expected volumes eased concerns about a shift to illicit cigarettes and offered ITC more room for further price hikes. This performance also showed that ITC's gradual pricing strategy was helping to safeguard market share despite short-term margin losses, according to brokerages.

Cigarettes make up the majority of ITC's earnings, making a recovery in this segment crucial for investors. PhillipCapital suggested the June quarter may have been the bottom for cigarette earnings, while HSBC anticipated a slow recovery as the impact of price hikes trickled through. Jefferies and Nomura pointed out that resilient cigarette volumes following the tax increase showed consumer demand had held up better than anticipated, providing ITC with the opportunity to further raise prices and enhance profitability in the coming quarters.

Fiscal 2027 would likely remain a transition year as ITC balances price increases with preserving market share, with the company expected to restore cigarette business profitability by the end of the fiscal year, according to Dolat Capital. Earlier this year, India's largest market imposed an excise duty on cigarettes ranging from ₹2,050 to ₹8,500 per thousand sticks, along with a 40% consumption tax, a move analysts labeled as a "negative surprise for the industry."