Morgan Stanley downgraded the stock to equal-weight from overweight and reduced target price to Rs 285 from Rs 395.
According to the research house, the company will need 12-13 percent weighted average cigarette price hike hereon and will need 20 percent price increase in KSFT segment to offset tax increase.
Morgan Stanley expects 3 percent volume decline in FY18 versus earlier estimate of 5 percent growth and expects 6 percent cigarette business EBIT growth versus 20 percent earlier.
Equity benchmarks opened sharply lower on Tuesday, with the Nifty falling below 9900 level, dragged by ITC after cess on cigarette hiked by the GST Council.
The 30-share BSE Sensex was down 239.02 points at 31,835.76 and the 50-share NSE Nifty fell 56.55 points to 9,859.40.
ITC crumbled nearly 14 percent as brokerage houses downgraded the stock after the Goods and Services Tax (GST) Council decided to increase the cess on cigarettes. Other stocks like Godfrey Phillips (down 10 percent) and VST Industries (down 5 percent) also caught in bear grip.
HDFC, Infosys, TCS, Wipro and ACC gained up to 1.5 percent while Bharti Airtel surged 5 percent.
About two shares declined for every share rising on the NSE.
Shree Digvijay Cement, Linde India, Max Financial and Jubilant Foodwors lost up to 5 percent while Fortis Healthcare and Aditya Birla Nuvo gained up to 5 percent.
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