Godfrey Phillips, ITC and other cigarette stocks rise up to 12%. What’s driving the rally?

Shares of cigarette makers ITC Ltd, Godfrey Phillips India Ltd and VST Industries Ltd rose up to 12% after media reports showed companies have hiked prices to pass on higher costs to consumers. The price increases are intended to offset the recent excise tax increase, reducing the expected EBIT decline to around 2%, compared to previous estimates of 8-15%.ITC Ltd is likely to increase cigarette prices by 20-40% across brands, with new supplies expected to hit the market soon. Retailers are also seen selling their existing stock at higher prices. The developments come after the government on February 1 notified the end of the GST compensation tax and the rollout of a new tobacco tax regime, ET Now reported, citing sources.

Shares of ITC Ltd rose 2% for a third straight session to Rs 331 on the day and around 5.5% in the past three sessions. Meanwhile, Godfrey Phillips India Ltd rose 12% to Rs 2,315 per share on the BSE, taking the two-day rally to over 15%. Another cigarette maker, VST Industries Ltd, advanced 3.3% in the morning.

Under the new framework, excise duty on cigarettes was restructured to a range of Rs 2,050 to Rs 8,500 per 1,000 sticks, besides a 40% GST. This has significantly increased the overall tax burden on cigarettes, raising concerns about demand, margins and the risk of an increase in illicit trade.

Adding to the inconvenience is a technical change in the National Calamity Contingent Duty (NCCD) announced in the Budget.

The government has increased the statutory NCCD rate on tobacco products from 25% to 60% with effect from May 1, 2026. However, the Budget has also clarified that the effective excise duty rate will remain at 25% through a notification, meaning there will be no immediate increase in tax outgo for cigarette manufacturers. Simply put, this is not a tax increase today, but a future provision. The government has created room to increase the excise tax later without changing the law again.

ITC Q3 snapshot

In the December quarter, ITC, India’s largest cigarette maker, reported 6.2% year-on-year sales growth, driven by double-digit growth in FMCG-Others and steady growth in cigarettes. Cigarette revenues rose 8%, supported by 7% volume growth.Also read: Ola Electric shares recover 5% after falling 11% in four sessions. What drives the wave?

However, margins in the cigarette segment fell to a multi-quarter low of 59.9% and fell 163 basis points year-on-year due to the consumption of expensive leaf inventory. Management has indicated that leaf purchasing prices have declined in the current harvest cycle, which could support margins in the coming quarters.

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