ITC‘s cigarette business closed FY26 with segment revenue of Rs 37,100 crore, up 13.7% year-on-year, and segment results of Rs 21,051 crore, a 5.1% increase. Although the numbers look well, the company’s business did take a turn from February 1.
The business had, by most measures, been running well through the better part of the year. Volume momentum was intact, the premium end of the portfolio was holding up, and the legal cigarette industry had been benefiting from a period of relative taxation stability.
Effective February 1, 2026, the government phased out the Compensation Cess and replaced it with a revised structure, GST climbing from 28% of transaction value to 40% of retail sale price, accompanied by a steep hike in excise duties. ITC has described the combined impact as “unprecedented.” The change collapsed comparability across both Q4 and full-year numbers, which ITC itself flagged in its results: gross revenue and excise duty figures for the period are not strictly comparable with the previous year.
Cigarette segment revenue for the quarter came in at Rs 11,066 crore, up 31.7% year-on-year. But the February tax restructuring changed how GST is calculated, from transaction value to retail sale price, which mechanically pushed up the revenue figure. ITC itself noted that Q4 numbers are not directly comparable with last year. Segment results, which means what the business actually earned after costs, grew at a much slower 7.2% to Rs 5,488 crore.
A well-worn concern resurfaces
ITC’s response to the tax hike has been two-fold: staggered pricing and a fairly aggressive portfolio rearchitecting exercise. The company has explicitly said it wants to avoid a sharp volume shift to illicit trade, which it estimates already costs the exchequer approximately Rs 23,000 crore annually and accounts for roughly a third of the legal cigarette market. India is, by Euromonitor’s count, already the fourth-largest illicit cigarette market globally, and ITC has been making this argument to policymakers for some time.
The company’s position is that punitive taxation on legal cigarettes has consistently produced outcomes nobody intended, illicit volumes rising, tobacco farmers losing buyers, smaller businesses in the value chain getting squeezed, and the exchequer ultimately collecting less than it might have under a more calibrated regime. The February 2026 hike, in ITC’s telling, risks repeating that cycle.
Building around the trademark portfolio
On the portfolio side, ITC has moved with some urgency. The company has introduced a clutch of new variants and innovations across its key trademarks in recent months. Under Classic, it has launched Classic Connect, Classic Clove, Classic Refined Taste Sleek, and Classic Longs. The Gold Flake franchise has seen additions including Gold Flake Indie Mint, Kings Sleek, Social 2-Pod, SLK Range, Snap Mint, Smart Pro, Kings Longs, Premium Deluxe, and others. American Club has been extended with Clove Mint, Super Slims, Fruity variants, and Fruity Longs. Newer entries include Flake Insta Fresh, Flake Power Play, Players Minty Cool Deluxe, Wave Ice Mint Deluxe, Wills Clove, and Capstan Clove.
The idea is to have a wide range of trademarks, which gives the company more flexibility to adapt to changing prices without losing customers to grey-market products.
The road ahead
ITC has been candid that the year ahead will be difficult. The tax increase has reset the operating environment for the legal cigarette industry, and the company acknowledges it will test “the resilience and adaptability of legitimate players.” The full effect of the February change is still working its way through consumer behaviour, trade channels, and competitor responses, including from the unorganised segment that faces no comparable tax burden.