ITC surges 3%: Nomura upgrades to ‘Buy’, calls cigarette pricing ‘masterstroke’ but Motilal flags tax pressure

After the results, two big brokerage houses are reading the same numbers in two very different ways.  One is telling investors to sit tight. The other is telling them to buy. So, what should investors focus on now – 

The numbers behind the noise

The company’s cigarette business, its biggest earnings driver for decades, took a hit this quarter. Consolidated net cigarette revenue fell 22% year-on-year, and volumes dropped by high single digits. 

The key reason behind this was a sharp jump in taxes forced ITC to raise prices, but instead of passing the entire tax hike onto smokers immediately, the company chose a slower, calibrated approach. But that caution came at a cost to earnings.

The share price has declined nearly 23% so far in 2026. The company currently has a market capitalisation of around Rs 3.52 lakh crore, trades at a price-to-earnings (P/E) ratio of 17.02. The 52-week high of the company stands at Rs 427 and the low is at Rs 275. 

Motilal Oswal on ITC: ‘Neutral’

Domestic brokerage house, Motilal Oswal has kept a ‘Neutral’ stance on ITC, setting a target price of Rs 300, which is just about 7% higher than the current market price.

The biggest concern as per the Motilal Oswal report continues to be the cigarette business, which faced pressure after the recent tax increase. The brokerage noted that ITC has chosen a gradual approach to passing on higher taxes to consumers instead of implementing an immediate price hike.

The report said, “Given a sharp increase in taxes, ITC has adopted a calibrated price hike strategy (unlike immediate tax pass-on historically) to protect the loss of consumers to illegal cigarette markets.”

As per Motilal Oswal report, cigarette volumes declined during the quarter and price increases are still being rolled out. It believes earnings from the cigarette business could remain under pressure over the next few quarters.

Motilal Oswal also said, “ITC is still under the transitory phase in terms of passing on the entire tax hike to consumers. Thus, we believe the cigarette revenue and EBIT performance will be volatile in the near term.”

At the same time, the brokerage highlighted that the company’s fast-moving consumer goods and paper businesses continued to perform well.

However, it added, “FMCG business continues to perform well with robust improvement in margins. However, we believe earnings pressure on cigarettes would offset the near-term catalysts.”

Nomura on ITC: Sees room for further upside

Nomura sees things quite differently. It has upgraded ITC to a ‘Buy’ rating, with a target price of Rs 340, an upside of roughly 21% from current levels.

What’s got Nomura excited? The volume decline of 5% this quarter was far smaller than the 10+ percent drop that analysts had feared.

Nomura also pointed out that ITC has been aggressive on the product front, rolling out more than 30 new stock-keeping units (SKUs) in just one quarter, and even launching an international brand to compete directly with rival cigarette makers.

There’s a strategic angle too. Smokers have been downtrading from Regular to Deluxe variants, since Deluxe saw smaller price hikes. Normally that would hurt margins. 

But Nomura noted that after ITC’s recent pricing changes, profitability per stick in Premium Deluxe is now similar to or better than Regular cigarettes. 

Nomura noted, “ITC is ensuring it is replacing the price point that it is evacuating with the launches of same brand and blend in smaller sizes, giving smokers more choices.”

The brokerage calls this pricing move a “masterstroke” that could help offset the impact of consumers trading down.

What should investors watch now?

Both brokerages agree on one thing – the cigarette tax hike is still working its way through the system, and until it fully does, earnings volatility is not going away. Where they differ is on how much credit to give ITC for handling that transition. Motilal Oswal wants to see the dust settle first. Nomura believes the company has already shown it can manage the disruption better than expected.

For now, investors watching ITC will need to keep an eye on how the next few quarters pan out. These could be crucial in assessing whether ITC can balance higher taxation with stable demand while maintaining profitability across its core cigarette business and expanding its fast-moving consumer goods portfolio. 

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