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

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

1. Cigarette volume growth and net realisation per stick.
2. EBITDA margin against 16.75% for ITC and 4.75% for Godfrey Phillips in Q1.
3. Commentary on the festive quarter and illicit trade.
4. Non-cigarette FMCG growth at ITC.
5. 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.

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.