ITC stock down 4% as BAT prepares to pare stake

The ITC stock fell 4 percent in the afternoon trade after its largest shareholder, British American Tobacco (BAT), said it was working towards completing the regulatory process to pare its stake in the diversified conglomerate.

At of 1.41 pm, ITC was quoting Rs 414 on the NSE, down 4 percent.

“We continue to pursue all opportunities to enhance balance sheet flexibility and, as part of this, we regularly review our stake in ITC. We recognise that we have a significant shareholding which offers us the opportunity to release and reallocate some capital,” BAT said in its Q4 earnings on February 8.

BAT holds a 29.03 percent stake in ITC, which is worth Rs 1.5 lakh crore.

The company said it has been working for some time on completing the regulatory process to give it the flexibility to monetise some of its shareholding. It will update shareholders with further information whenever available, BAT said.

After falling 20 percent over 2023, BAT shares were trading higher by 5.50 percent in trade at 8:57 am GMT on the LSE. A Jefferies analyst said this was the “strongest signal yet” around the potential stake sale.

If BAT were to pare its stake by four percentage points to have a 25 percent shareholding in ITC, the value of the shares offloaded would be around Rs 20,760 crore at ITC’s current market cap.

In its filing, BAT said the its share of ITC’s post-tax results was 19.8 percent higher at £616 million for the year 2023, compared to £514 million in 2022.

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In December 2023, BAT said it would consider paring its 29.02 percent stake in the cigarettes-to-hotels conglomerate.

“We don’t need to have more than 25 percent shareholding in ITC to have a strategic influence, including veto rights. Today, we have more than that,” Tadeu Marroco, CEO, British American Tobacco (BAT), had said.

The complexity of divesting ITC’s shares is immense and there are two key pain points. India imposes restrictions and limitations on foreign ownership in domestic tobacco companies, Marroco said in December.

Also Read | BAT stake sale unlikely to have any long-term impact on ITC, say analysts

“There are specific RBI approvals that are required in respect of any action-taking about our stake, and this adds a significant level of additional bureaucracy,” he added. As a result, “the universe of buyers is limited”’ for ITC shares, the CEO said.

According to analysts that might be true in the context of finding strategic buyers. However, there might be enough appetite for the stock among institutional investors.

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