ITC Ltd.’s December quarter (Q3 FY26) performance remained steady in its core cigarette division, while its FMCG arm delivered a healthy uptick in operating profitability. However, the brokerage has turned cautious after the sharp taxation changes announced in the recent GST and excise revisions—implemented from February 01, 2026—resulting in a steep rise in cigarette taxes. Motilal Oswal had downgraded ITC from Buy to Neutral after the announcement, citing the disrupted earnings outlook for the cigarettes business.

The stock has already corrected nearly 20% since the tax announcement was made on January 01, 2026. Earnings pressure on cigarettes would take away the near-term catalysts (soft tobacco prices, recovery in FMCG and Paper) and comfort on valuation.

ITC has a full cigarette portfolio to better navigate the tax increase, but competitive pressure from illicit cigarettes will take a toll on the formal cigarette industry.

Motilal Oswal has reiterated its Neutral rating on ITC with a SoTP-based target price of Rs 365 per share (valued at 21× Dec’27E P/E). The brokerage believes the stock lacks immediate catalysts as the industry adjusts to the new tax structure.

  

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