ITC share price: Target cut as cigarette volumes may decline 8-10% in H1, says Systematix

Systematix Institutional Equities, which did channels check on cigarette sales, said it has lowered its revenue and earnings per share (EPS) estimates for ITC Ltd by 24 per cent, as it factored in a cigarette volume decline of 8-10 per cent for the cigarette maker in the first half of FY27. It also anticipated a sharp fall in net-realization for ITC in the June quarter. This, Systematix said, would result in 5 per cent decline in volumes and 11 per cent drop in net sales for FY27. 

“We maintain Hold rating on ITC, valuing the stock at FY28E P/E of 18 times (in-line with its current 1-year forward multiple) to arrive at a revised target of Rs 310 (against Rs 340),” Systematix said in a note on consumer staples. 

The domestic brokerage noted that ITC’s cigarette volumes had in FY15 and FY16 declined 8 per cent each on the back of a Basic Excise Duty (BED) hike of 72 per cent on longer cigarettes in the Union Budget 2014, and price hikes in mid-teens. The stock had also declined by 8 per cent in FY15 and was flat in FY16.

On cigarette price hikes, Systematix said some distributors indicated a further price hike of 15-18 per cent across segments, while others said no such hike has been intimated by cigarette companies.  

To recall, cigarette prices were hiked by a blended 25 per cent over February-March, with a 20 per cent hike in Regular (69mm) segment and 30-35 per cent hike in Kings’ (84mm) segment. ITC shares are down 21 per cent in 2026 so far.

“At the distributor-level, Kings’ volume sales have declined by 20-30 per cent in past 2-3 months; Regular segment is faring better, at flat to a decline of 10-15 per cent. The decline is mainly due to a significant channel inventory buildup in January-February, which is now getting drawn-down. End-consumer volume has also declined by a lower 5-6 per cent in past 2-3 months esp. in Kings,” Systematix said.

Systematix said primary channel inventory would take 2-3 months more to normalise. It feels secondary volume should also stabilize in 2-3 months, as smokers revert to the consumption frequency/length they are habituated to. 

“Companies are also launching shorter cigarette lengths to try to maintain old price-points and soften the inflationary blow to the consumer. While this would impact product mix, companies are currently prioritizing preservation of consumer demand. Illicit segment sales (20-25 per cent of the market) are flourishing
despite instances of government crackdowns,” Systematix said.