Synopsis: A 30–40% excise duty hike effective February 2026 has triggered an approximately 20% volume decline in India’s cigarette market as of April 2026, with the King Size segment bearing the sharpest price shock.
India’s cigarette market is showing its first major stress fracture of FY27. A 30–40% increase in excise duty, which came into effect from February 1, 2026, forced manufacturers to push through significant price hikes across segments and the volume response has been severe. Overall cigarette sales volumes have dropped approximately 20% in April 2026, according to an NDTV Profit report, with the premium King Size segment registering the sharpest contraction. The two companies bearing the most direct exposure have both seen their shares under pressure as the market digests what this structural repricing means for earnings.
ITC
With a market capitalization of Rs. 3,80,958.48 crore, the shares of ITC were trading at Rs. 304.05 per share, down from a previous close of Rs. 305.30 apiece. The stock trades at a P/E of 18.78, already reflecting a year of underperformance.
ITC has declined approximately 29 percent over the past 12 months against its 52-week high of Rs. 444.20. The low P/E relative to its historical range signals that the market has been pricing in structural headwinds even before the latest excise shock hit volumes.
Godfrey Phillips India
With a market capitalization of approx Rs. 33,035.38 crore, the shares of Godfrey Phillips India were trading at Rs. 2,117.1, down 1.68 percent from its previous close and well off its 52-week high of Rs. 3,947.
The stock’s steep descent from peak levels reflects how quickly sentiment reversed on a company that had been a multi-year momentum winner, with its share price having appreciated sharply through 2024 before the regulatory and tax backdrop shifted.
What the King Size Problem Means for Both Companies
King Size cigarettes which include ITC’s Classic and Gold Flake Kings, and Godfrey Phillips’ Marlboro account for over 30 percent of revenue for both companies. These are also the highest-margin products in their respective portfolios, with ITC’s overall cigarette margins reported to be as high as 70 percent. The price increase is where the volume damage has concentrated: per-stick costs on King Size have moved from Rs. 20 to as much as Rs. 25–28, a jump of 25–40 percent at the retail level. For a daily smoker, that is a meaningful real income shock.
The consumer response has followed a textbook elasticity pattern. The total number of smokers appears broadly stable. This is not a category-exit story but a significant portion of the King Size consumer base has migrated down to shorter-length, lower-priced alternatives. This “downtrading” dynamic is analytically important: volume across the total market declines, but so does the revenue and margin per unit, because the sub-segments that consumers shift into carry lower absolute prices and thinner margins. The damage flows through both the top line and the earnings line simultaneously.
Illicit Trade and Structural Risks
Large tax increases on tobacco have historically created conditions for illicit trade expansion. When the price gap between legitimate and illicit cigarettes widens sharply, smuggled and counterfeit products become economically attractive to a larger share of the price-sensitive base. This is a channel that is difficult to quantify in real time but represents a structural revenue risk over the medium term particularly if enforcement does not keep pace with the incentive to substitute.
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