Shares of major cigarette makers, including ITC, Godfrey Phillips India, and VST Industries, surged sharply this week, with some rising up to 12%, following a wave of price hikes aimed at offsetting recent tax increases.
The jump comes after the government’s excise duty hike in January had raised concerns about profitability and volume pressures across the sector. Investors had feared that higher taxes would significantly impact earnings. However, companies have acted quickly, passing most of the additional cost to consumers through price increases across their product lines.
Godfrey Phillips led the rally, with its Marlboro Compact sticks now priced at around ₹11.5, up from ₹9.5 earlier. ITC, meanwhile, raised prices across premium brands, some by as much as 41%, while moderating increases in more price-sensitive segments to balance sales volumes.
Brokerage firm UBS welcomed these moves, saying the pricing action could limit the hit to earnings before interest and tax (EBIT) to just around 2%, far below earlier estimates of 8–15%. The firm maintained a “Buy” rating on ITC, with a target price of ₹395, signaling strong upside potential.
Analysts say this carefully calibrated strategy demonstrates the sector’s pricing power and ability to protect margins despite regulatory pressures. Tobacco contributes over 40% of ITC’s revenue, so margin preservation is crucial for the company’s overall earnings outlook.
The market rally also reflects renewed investor confidence after recent corrections, with traders betting that demand for established cigarette brands remains resilient. Strong pricing and the ability to pass on taxes quickly have reassured the market that the sector can weather the new tax regime without major disruptions.
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