Where Will ITC Share Price be in the Next 3 Years?

Why ITC Shares Dropped 15% in 2026?

ITC shares have dropped sharply in early January 2026 due to a government-imposed excise duty hike on cigarettes, a key profit driver for the company. This led to heavy selling pressure in the stock.

An excise duty would be imposed on cigarettes in addition to a 40% GST. The finance ministry notified that an excise duty of Rs 2,050-8,500 per 1,000 sticks, depending on cigarette length, will take effect from 1 February 2026.

Some investors estimate that there would be a need to hike cigarette costs by up to 40%, hurting volumes. While estimates can always vary, the belief is that the earnings could be impacted.

Let's now examine the pros and cons of investing in the ITC stock.

What Makes the Prospects of ITC Appealing in the Next Three Years?

• Strong Dividend Yield

  ITC is regarded as a strong choice for income-focused investors due to its consistently high dividend payout ratio, offering a yield of approximately 4.17% based on the current market price. However, with the impact of excise duty expected to unfold in FY27, it remains to be seen whether ITC will sustain its dividend levels from the previous year.

• FMCG & Hotel Growth

  ITC is no longer "just a cigarette company." Its non-tobacco businesses are reaching critical mass:

  FMCG Powerhouse: Brands like Aashirvaad, Sunfeast, and Bingo are market leaders. This segment continues to see margin expansion as the brand portfolio matures.

  Hotel Demerger: The demerger of the hotel business (completed in 2024-2025) has streamlined ITC's capital structure, making it a more asset-light and focused entity.

• Strong Cash flows and Zero Debt

  ITC maintains a zero-debt balance sheet and generates substantial cash flow, supporting consistent dividends.

• Financial Parameters

  The company's stock trades at a PE 21.3, against a Nifty FMCG PE of 39.3. The price to book value (PB) is also below the Nifty FMCG index's PB of 9.1 times.

What are the Challenges ITC Faces?

• The "Tax Shock" of 2026

  The tax shock of 2026 on cigarettes is likely to hurt either margins or volumes or both. This is likely to have an impact on the numbers of FY27 and beyond.

  This, the company might need to excel significantly in the FMCG and paperboards business.

• Regulatory Uncertainty

  The tobacco business remains at the mercy of policy makers. Any future ban on loose cigarettes or further increases in the "Compensation Cess" could be a clear negative.

• Intense Competition

  In FMCG, ITC faces tough competition from big rivals (HUL, Nestle, Britannia, etc.), which can limit growth and margins.

Financial Highlights of ITC

In Q2 FY26, ITC reported revenues of Rs 212,559 m, compared to Rs 215,364 m in the same period last year. The consolidated net profits gained to Rs 51,202 m in Q2 FY26 compared to Rs 49,750 m in the same period last year.

What to Expect from ITC in Next Three Years?

The ITC stock provides an attractive dividend yield and is backed by well-established brands. There is potential for long term growth in its FMCG and hotels businesses.

However, the recent tax hike on cigarettes is expected to impact margins and volumes negatively. This will be a major overhang on the stock in the short term.

Investors should evaluate the company's fundamentals, corporate governance, and valuations of the stock as key factors when conducting due diligence before making investment decisions.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...