Tobacco tax fallout: LIC loses Rs 10,445 crore in two days; ITC shares slide 14% after duty hike

The sell-off was triggered after the finance ministry late Wednesday notified a revised excise duty structure on cigarettes, effective February 1.Under the new regime, duties will range from Rs 2,050 to Rs 8,500 per 1,000 sticks, depending on cigarette length, a move that sent shockwaves across the tobacco sector and sparked heavy selling in cigarette stocks.ITC shares crashed to a three-year low of Rs 345.35 on Friday before ending the session at Rs 350.10, down Rs 13.75, or 3.8 per cent, from the previous close.

The stock has fallen 14 per cent over the past two trading days.The sharp correction has prompted multiple brokerage downgrades.

Motilal Oswal Financial Services described the magnitude of the tax increase as “staggering”, noting that cigarette taxes will rise by about 50 per cent, ET reported.The brokerage said ITC would be forced to implement price hikes of at least 25 per cent at the portfolio level just to maintain current net realisation per stick, and downgraded the stock from ‘Buy’ to ‘Neutral’ with a revised target price of Rs 400.“To offset the tax burden, ITC will need to implement substantial price increases.

Assuming no mix change, ITC requires a 40 per cent price hike just to pass on the impact,” Jefferies said in its downgrade of the stock from Buy to Hold.Jefferies added that if ITC passes on the full impact through price hikes, the effective tax hike would be around 70 per cent, pushing tobacco taxes per stick from 55 per cent to 65 per cent of the maximum retail price.The brokerage remained cautious, stating that “near-to-medium term upside now looks capped” and warning that the stock could face further pressure in the near term.ITC shares have already been under pressure, declining about 28 per cent over the past one year, even before the latest tax move added fresh uncertainty to the outlook.