British American Tobacco Industries, p.l.c. Common Stock ADR (BTI) Stock Analysis — Latest Investor Quotes & Trade Calls

British American Tobacco Faces Earnings Headwinds from ITC Tax Hike

"Let's turn to British American Tobacco next. Shares are in the red there. What's driving that? >> Uh well, BAT is taking a hit because of its stake in ITC, which is the largest maker of cigarettes in India. And that company is taking a big hit because of a new excise duty to try and limit the smoking rate in India. We've got 250 million people smoking in India. That's the second highest population globally. For ITC it's not too exciting because we're talking about a tax hike of over 30% if we include other charges on cigarettes. This new tax, given that ITC gets over 40% of its revenue from cigarettes, could mean a big hit on volumes and earnings, triggering a 15% cut in earnings per share estimates for 2027 and 2028. It's a significant vulnerability for BAT, which holds about a 23% stake in ITC."

British American Tobacco is under pressure as its stake in ITC is adversely affected by a new excise duty on cigarettes in India. The significant tax hike—over 30%—is expected to reduce ITC's volumes and earnings, leading to a 15% cut in EPS estimates for 2027 and 2028, thereby negatively impacting BAT's outlook.

British American Tobacco exposed to regulatory tax hikes

"Okay. And we're looking to at British American Tobacco this morning. Could a new excise duty on cigarettes affect their fortunes this year? Yeah, VAT has taken quite a bit of a hit this morning because of its stake in ITC which is itself taking a big hit. So ITC is India's largest maker of cigarettes and the shares plunged quite, quite impressively, quite massively after the government decided to impose a new duty on cigarettes. Um and that new duty would result in a tax hike of over 30% and the reason why the market reaction was so harsh is because that tax burden is much higher than anticipated and ITC is very vulnerable to it. It gets over 40% of its revenue from cigarettes. So this new tax would mean a really big hit on volumes, big hit on earnings of course um and it could lead to a hike in prices of at least 15% uh to kind of pass on that impact to consumers. And because BAT is ITC's largest shareholder, we've got a stake of about 23% um it means that BAT is quite exposed to the fortunes of ITC and we're seeing that reflected in in some weakness in those shares this morning."

The analysis points out that British American Tobacco is feeling the impact of a new excise duty on cigarettes, which has severely affected ITC, its major investment. The tax hike of over 30% is expected to pressure cigarette volumes and earnings, thereby negatively impacting BAT due to its sizeable stake in ITC.