ITC downgraded as India's cigarette tax hike threatens volumes, earnings By Investing.com

Contributing sentiments towards policy:

57% : It added that due to the ad valorem nature of the tax, fully passing on the impact through pricing would raise the effective tax increase to about 70%.
56% : Legal cigarettes account for about 10% of tobacco consumption but contribute about 80% of tobacco tax revenue, it said.
54% : Jefferies estimates the change could result in an effective tax increase of about 50% at the portfolio level, assuming no change in product mix and no change in the national calamity contingent duty.
53% : The brokerage said there is limited historical precedent for such a sharp tax or price increase in a single year.
52% : (NSE:ITC) was downgraded to "hold" from "buy" rating by Jefferies after the Indian government notified a sharp increase in cigarette taxation that the brokerage said materially alters the company's earnings outlook and limits near-term upside for the stock.
52% : In a recent note, Jefferies said the government has notified a higher central excise duty on cigarettes, replacing the compensation cess, along with an about 40% goods and services tax on the maximum retail price, effective Feb. 1, 2026.
50% : It said the tax impact varies by cigarette length, ranging from 25% to 55%.
47% : Under that scenario, tobacco taxes per stick would rise to about 65% of the maximum retail price from about 55%.
47% : The analysts also cited a response from the Tobacco Institute of India, which said it was shocked by the scale of the tax increase and urged the government to review the decision.
46% : Jefferies said ITC would need to implement price increases of about 40% to pass on the higher tax burden, assuming no mix changes.
43% : The brokerage said the downgrade reflects a more constrained risk-reward profile following the tax change.
43% : The industry body said illicit cigarettes account for about 25% of the market and warned that a wider price gap could increase non-duty-paid consumption and tax leakage.
42% : It cited FY2015-16, when cumulative cigarette volumes fell by more than 15% following aggressive tax hikes and mid-teen price increases.

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