BAT Considers Reducing Stake in ITC

In recent days, according to Indian financial media outlet Moneycontrol, British American Tobacco (BAT), the largest shareholder of ITC, is reportedly considering reducing its stake of 29.02% in the conglomerate.

According to reports, the current market value of the shares held by British American Tobacco in ITC is 1,63,200 crore Indian Rupees, with each share valued at 451.05 Indian Rupees. If British American Tobacco reduces its equity stake by four percentage points, the total value of the shares it plans to sell will reach approximately 22,500 crore Indian Rupees.

In fact, the sale of shares could be seen as an attempt by the British-American Tobacco Company to reduce its debt and comply with India's strict regulations on foreign tobacco companies' ownership. On December 18th, ITC's stock faced pressure and witnessed a intraday decline of 1.5%.

In general, ITC lacks any promoters and its major shareholders are foreign institutional investors and domestic institutional investors, who respectively own 43.3% and 42% of the company's shares. According to quarterly data from September, the public holds 14.7% of the company's shares.

Significantly important analysts firmly believe that the company will create long-term value for shareholders in the future. "Therefore, we do not anticipate any substantial decline in the stock price in the medium to long term," stated Parth Shah, research analyst at StoxBox Corporation."

So, will there be buyers willing to take over these shares?

According to Rajat Mehta, the CEO of Mehta Equities, "The domestic fund flow is very strong; Republic Foundation is more than willing to purchase any shares." On this matter, others also concur, believing that domestic institutional investors will see this sale as an opportunity to establish new positions or increase their holdings."

Furthermore, CEO of British American Tobacco, Mr. Marroco, believes that the sale of shares in ITC is highly complex due to the restrictions and limitations on foreign ownership imposed by India on domestic tobacco companies.

He pointed out, "For any of our actions regarding shares, specific approval from the Reserve Bank of India is required, which adds significant additional bureaucratic procedures." He added that as a result, "the buyer group for ITC shares is limited."

Although ITC's stock price may see more upward potential in the future, analysts believe that for the current strategy buyers mentioned in the article, this could be the right move.

"Whether the buyer is a single entity or multiple institutional investors, this should not pose a problem, considering ITC's performance in the past few quarters," said Gaurang Shah, Senior Vice President of Geojit Financial.

A recent study has found that the performance of tobacco companies is expected to be affected in the short term, but the long-term impact of the recent equity sale is unlikely to be lasting. ITC's long-term driving factors, including a focus on the fast-moving consumer goods sector and improved profitability levels, as well as reducing dependence on the tobacco business, are steadily progressing.

Since the beginning of the year, the group's stocks have risen by 34%, propelling ITC to become the world's third-largest tobacco company, surpassing British American Tobacco.