On the very first day of the new year, a sharp decline was seen in Tobacco stocks in the stock market. ITC shares fell by about 8.2% to ₹370, while Godfrey Phillips’ stock fell by about 16%.

The biggest reason for this decline is the central government’s big decision on cigarette tax. According to the official notification issued by the Finance Ministry, the government has increased the excise duty on cigarettes. Now excise duty will range from ₹ 2,050 to ₹ 8,500 per thousand sticks depending on the length of the cigarette. This new rule will come into effect from February 1 and will be imposed on top of the existing 28% GST and other cesses, which will significantly increase the total tax burden.

It is estimated that companies will pass this burden on consumers, due to which the price of a cigarette may increase by ₹ 2–3.

With this, the effective GST rate on tobacco and pan masala products will be around 40%. During this period, about 4 crore shares of ITC were sold in a block deal at an average price of ₹ 400, whose total value was ₹ 1,614.5 crore. This step of the government is being considered as part of the strategy to increase revenue and control sin goods.

The Indian stock market witnessed a strong strength on 23 May 2025, in which ITC Limited shares performed brilliantly. The company’s share prices are steadily increasing, behind which there are many important reasons, such as the best quarterly results, the declaration of dividend and the acquisition of new companies. Come, let us know in detail whether this pace of ITC shares can continue even further.

Strong quarterly results raised investors’ expectations

The ITC introduced the results of the March 2025 quarter, recording a 10 per cent increase in the company’s total income. The company’s revenue was Rs 203.7 billion, which is much better than the previous year. In addition, different ITC businesses, such as Agri-Business, Cigarettes and FMCG (Fast-Moving Consumer Goods) have performed well.

However, the net profit of the company was Rs 198 billion, including a lump sum profit of Rs 151.8 billion (from hotel business dimensions). If this lump sum profit is removed, the ITC’s core profit was Rs 46.6 billion, which was in accordance with the market expectations.

Dividend’s declaration increased investors confidence

ITC has announced an interim dividend of Rs 7.85 per share to its shareholders. Earlier, a dividend of Rs 6.50 per share was also given in February 2025. In this way, a dividend of a total of Rs 14.35 per share will be available in the financial year 2024-25.

Depending on the current price (Rs 436.30) of the stock, this dividend yield is about 3.3 per cent, which is more than many bank fixed deposits (FD). This is the reason that the trend of investors has increased towards ITC shares.

Increased chances of growth from new acquisitions

ITC has recently acquired several new companies, which has expanded its business. These include 24 Mantra Organic, Mother Sparsh and Prasuma (Meetigo). Apart from this, the company has also made a big deal in the paper and packaging sector. All these steps can be helpful in creating new revenue streams for ITC.

There are also challenges present

Although ITC has performed well, there are some challenges. Pressure of government rules on cigarette business – The government can have continuous tax on tobacco products and strict rules can affect this segment of ITC.

There is also competition in the FMCG sector. ITC will have to pay more attention to the marketing and innovation of its products due to increasing competition with Hul, Nestle and other companies. Analysts believe that ITC shares may still grow further, as ITC shareholders may get additional benefits after the hotel business dimpar is formed a separate company. The prospects of growth in FMCG and Agri-business are strong. The dividend yield is still attractive, which can give returns to long-term investors.

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