Shares of major Indian tobacco manufacturers surged on Wednesday, February 18, 2026, as investors reacted to aggressive pricing strategies designed to counter a new tax regime. The rally follows reports that cigarette makers have successfully implemented steep price hikes to absorb a significant increase in excise duties that took effect earlier this month. **ITC Ltd** saw its stock price rise nearly **2%** to reach **₹331**, extending a three-day winning streak that has netted over **5.5%** in gains. **Godfrey Phillips India** led the sector with a massive **12%** jump, trading near **₹2,315**, while **VST Industries** advanced by **3.3%** to **₹247.40**. The market's optimism stems from the sector's demonstrated pricing power. By raising retail prices by **15% to 40%** across various categories, manufacturers have effectively shifted the tax burden to consumers. This maneuver is expected to limit the impact on Earnings Before Interest and Taxes (EBIT) to just **2%**, a sharp improvement from initial market fears of an **8% to 15%** decline. The new taxation framework, which launched on February 1, 2026, replaced the previous GST compensation cess with a structured excise duty ranging from **₹2,050 to ₹8,500** per **1,000 sticks**, depending on cigarette length. This is applied on top of a **40% GST** rate. Premium brands have seen the most significant adjustments. Prices for **84mm** cigarettes in the King Size Filter Tipped (KSFT) segment, such as Gold Flake and Classic, have been raised to approximately **₹24** per stick, up from **₹17**. In the more price-sensitive **64mm** and **69mm** segments, hikes have been kept minimal to protect volumes and discourage consumers from switching to illicit alternatives. Analysts note that while the price hikes protect immediate margins, the sector faces long-term challenges. Volume growth may moderate as consumers adjust to paying **₹22 to ₹55** more per pack of **10 sticks**. Additionally, the illicit trade—already estimated to account for **20% to 30%** of the market—remains a persistent threat as legal prices rise. For ITC, the cigarette business remains the primary profit engine, contributing roughly **42%** of revenue and over **75%** of its operating profit. The company's ability to maintain a **59.9%** margin in its cigarette segment during the previous quarter, despite high-cost leaf inventory, suggests underlying resilience as new pricing flows through the supply chain.