Cigarette Stocks Q2 Preview: What Analysts Expect From ITC, Godfrey Phillips and VST Industries After the Tax Shock, With Volumes, Margins, Price Hikes and the Citi Upgrade
- October 5, 2026
- Posted by: Neeraj Pandey
- Category: News
Q2 FY27 for ITC, Godfrey Phillips, VST: ‘sequentially better but optically ugly’. Q1 profit -27%, -44%, -24%. Citi upgrades ITC to Buy, Rs 300.
Quick Answer
Cigarette stocks face a Q2 FY27 that analysts call sequentially better but optically ugly, because year-on-year numbers remain distorted by the February 2026 tax reset that put cigarettes in a 40% GST slab with extra excise duty. In Q1 FY27, ITC’s standalone profit fell 27%, Godfrey Phillips’ fell 44% and VST Industries’ fell 24%, with excise duty rising 73.5%, about 700% and 421% respectively. Analysts expect price hikes, including ITC’s September increases, to restore realisations, a festive-quarter lift and volumes to stabilise, with ITC volume falling about 6% in FY27, and Citi upgraded ITC to Buy on 5 October with a Rs 300 target. Illicit trade and downtrading remain the key risks to volumes.
Cigarette stocks were in focus on 5 October as ITC rose about 2% to 3% after Citi upgraded it to Buy from Sell and raised its target price to Rs 300 from Rs 257. The upgrade comes ahead of Q2 FY27 results for ITC, Godfrey Phillips and VST Industries, the first full set of quarters after the tax reset has been absorbed into pricing.
If you are searching for what analysts expect from cigarette stocks in Q2, this article covers the 40% GST and excise duty change, the Q1 FY27 results, the ITC Q2 results outlook, the Godfrey Phillips Q2 and VST Industries Q2 expectations, price hikes, festive support, volume and EBITDA margin expectations, market share, the Citi upgrade, stock performance and the illicit trade and downtrading risks. Data is from company filings and brokerage reports, so confirm it before acting.
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Why Cigarette Stocks Are Under Pressure: The Tax Reset
From 1 February 2026 the compensation cess was replaced by a flat 40% GST for cigarettes plus an additional excise duty of Rs 2,100 to Rs 8,500 per thousand sticks, depending on stick length. Q1 FY27 was the first full quarter under the new structure, and excise duty rose sharply for every listed maker.
| Company | Excise duty, Q1 FY27 | Change year on year |
|---|---|---|
| ITC | Rs 10,408.93 crore | Up 73.5% |
| Godfrey Phillips India | Rs 2,614 crore | Up about 700% |
| VST Industries | Rs 605.25 crore | Up 421% |
Companies phased in price hikes rather than passing the full tax through at once, so margins took the hit first and volumes were pressured by downtrading and illicit alternatives across cigarette stocks.
Cigarette Stocks Q1 FY27 Results: The Base for Q2
| Metric | ITC (standalone) | Godfrey Phillips | VST Industries |
|---|---|---|---|
| Revenue | Rs 26,943 crore, up 28% | Rs 3,820 crore, up 111% | Rs 862 crore, up 108% |
| Net profit | Rs 3,579 crore, down 27% | Rs 198 crore, down 44% | Rs 42 crore, down 24% |
| Operating EBITDA | Rs 4,514 crore, down 28% | Rs 181 crore, down 46% | Rs 50 crore, down 76% |
| EBITDA margin | 16.75% against 29.71% | 4.75% against 18.61% | Sharply lower |
Revenue for cigarette stocks jumped because excise duty is part of reported revenue, while profit and margins fell because price hikes lagged the tax. Nomura noted that ITC’s cigarette volume fell about 5% in Q1, better than its own estimate of a 10% decline.
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Q2 Preview for Cigarette Stocks: Sequentially Better but Optically Ugly
Harshal Dasani of INVasset PMS expects Q2 earnings to be sequentially better but optically ugly. He points to three things to watch in cigarette stocks: a higher price-point settlement, festive-quarter support and sequential stabilisation in volumes and net realisations. Year-on-year numbers will stay heavily distorted through FY27 because investors compare with pre-tax-hike levels.
| Factor | What analysts expect |
|---|---|
| Price hikes | ITC took further hikes in September, with Gold Flake Premium at Rs 135 and Classic Connect at Rs 428; bulk of required hikes now in place |
| Volumes | ITC cigarette volume to fall about 6% in FY27, with high single-digit weakness over nine months and recovery later |
| Margins | Per-stick profitability to improve as hikes flow through |
| Festive support | A better mix and higher sales in the festive quarter |
| Year-on-year optics | Distorted by the pre-tax base, so quarter-on-quarter trends matter more |
Jefferies argued that ITC should consider further hikes because volumes have held up better than feared, while HDFC Securities sees illicit trade as the key risk to its volume assumptions for cigarette stocks.
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ITC Q2 Results, the Citi Upgrade and Cigarette Stocks
Citi upgraded ITC to Buy from Sell on 5 October and raised its target price to Rs 300 from Rs 257, and the stock gained about 3% on the news. ITC’s Q2 results date has not been confirmed, and last year it reported on 30 October. As the market leader with an estimated 75% to 80% share of the legal cigarette market, ITC has the pricing power to absorb the reset better than smaller cigarette stocks.
Godfrey Phillips Q2 and VST Industries Q2: Outlook for Cigarette Stocks
For Godfrey Phillips Q2, the company, with an estimated 12% market share through Marlboro and Four Square, saw EBITDA margin collapse to 4.75% in Q1 as excise duty surged. It needs price realisation to catch up to restore margins. for VST Industries Q2, the company, with a share of about 8%, said it is adopting a measured pricing approach to protect its consumer base and is focused on recovering volumes, while its unmanufactured tobacco business is held back by instability in the Middle East.
How Cigarette Stocks Have Performed
| Stock | Year-to-date return at 3 August | Comment |
|---|---|---|
| ITC | About -21% | Citi upgrade on 5 October lifted the stock |
| Godfrey Phillips India | About -2.5% | Better held than peers |
| VST Industries | About -14% | Fell about 18% in the month after Q1 |
The returns are from the Q1 results period and have since changed, so check live prices for the cigarette stocks.
Risks Behind Cigarette Stocks
Illicit trade: Higher legal prices can push consumers to lower-priced illegal cigarettes.
Downtrading: Smokers may shift to shorter or lower-priced sticks, hurting realisations.
More tax: Any further excise increase would again outpace price hikes.
Volume decline: The legal market could contract 6% to 8% in FY27, hurting cigarette stocks.
Optics: Reported year-on-year profit of cigarette stocks will look weak until the tax base is lapped.
What to Watch in Q2 Results for Cigarette Stocks
- Cigarette volume growth and net realisation per stick.
- EBITDA margin against 16.75% for ITC and 4.75% for Godfrey Phillips in Q1.
- Commentary on the festive quarter and illicit trade.
- Non-cigarette FMCG growth at ITC.
- Results dates, since only ITC’s history suggests late October.
Conclusion
Cigarette stocks enter Q2 FY27 after a Q1 in which profit fell 27% at ITC, 44% at Godfrey Phillips and 24% at VST as the tax reset hit. Analysts expect a sequentially better but optically ugly quarter, helped by price hikes, a festive lift and stabilising volumes, and Citi’s 5 October upgrade of ITC to Buy shows rising confidence in cigarette stocks. Illicit trade and further tax remain the risks. Consult a SEBI-registered advisor before making any decision.
Disclaimer: Data and figures in this article are sourced from publicly available information. These may or may not be accurate. Please verify all data with the official NSE (nseindia.com) and BSE (bseindia.com) websites before making any investment decision. Investments in securities are subject to market risk. This content is for educational purposes only and is not investment advice by Univest (SEBI RA INH000013776).
Frequently Asked Questions
What do analysts expect from cigarette stocks in Q2?
Ans. Analysts expect cigarette stocks to post a sequentially better but optically ugly Q2, with price hikes, festive support and stabilising volumes helping, while year-on-year numbers stay distorted by the tax reset.
How did cigarette stocks perform in Q1 FY27?
Ans. ITC’s standalone profit fell 27%, Godfrey Phillips’ fell 44% and VST’s fell 24% as excise duty surged.
What is the new tax on cigarettes?
Ans. From 1 February 2026 cigarettes face 40% GST plus an additional excise duty of Rs 2,100 to Rs 8,500 per thousand sticks.
Why did Citi upgrade ITC?
Ans. Citi raised ITC to Buy from Sell on 5 October with a target of Rs 300, up from Rs 257, and the stock rose about 3%.
When are ITC Q2 results?
Ans. ITC has not confirmed the date. It reported Q2 on 30 October last year, so late October or early November is likely.
Which cigarette stock has the largest market share?
Ans. ITC leads with an estimated 75% to 80% share, followed by Godfrey Phillips near 12% and VST Industries near 8%.
What is the biggest risk for cigarette stocks?
Ans. Illicit trade and downtrading, which can reduce legal volumes and realisations even as prices rise.
Are cigarette stocks a good buy now?
Ans. This article does not constitute investment advice. Prices and volumes are recovering but the tax base is permanently higher. Consult a SEBI-registered financial advisor before investing.
