BAT confirms considering selling a small portion of its stake in ITC

Struggling with debt, British American Tobacco (BAT) stated on Tuesday that it’s considering selling a portion of its shares in ITC through an on-market block trade.

BAT remarked in a statement, “The possibility of this transaction moving forward and its terms are uncertain. We will provide further updates if and when necessary.”

ITC’s shares, a diversified conglomerate, fell by up to 2.43% to Rs 399.45 each on the BSE in Tuesday’s opening trade. This followed reports of British American Tobacco (BAT) considering selling a portion of its stake in ITC through an on-market block trade.

According to report, selling the stake would enable the maker of Dunhill and Lucky Strike cigarettes to reduce its debt and reach a leverage range that would allow it to resume share buybacks sooner.

According to a Reuters report, Bloomberg News, which initially broke the news on Monday, stated that BAT has been in discussions with Bank of America and Citigroup regarding a potential divestment of approximately $2 billion to $3 billion in ITC stock through block trades.

As of the last update, ITC shares were down by 2.3% to Rs 400 on the BSE, with the company’s market capitalization standing at around Rs 4,99,508.44 crore.

British American Tobacco is anticipated to sell a 4% stake in a block deal, likely at a discount from the current market price. BAT currently holds over a 29% stake in the company.

According to reports, the stake sale is expected to generate $200–$300 crore (Rs 16,500–Rs 24,800 crore) for BAT.

What impact will the stake sale have on ITC?

Some analysts suggest that BAT’s successful reduction of its stakes could benefit both companies, granting ITC Hotels independence and providing BAT with extra capital.

“Atul Parakh, CEO of Bigul, commented, “ITC’s robust brand presence and market dominance are expected to continue attracting investors, regardless of changes in ownership that may influence investment decisions in the FMCG sector. Regulatory challenges and declining smoking rates present obstacles in the tobacco segment, but ITC’s emphasis on premiumization and diversification could help offset the impact.”

Parakh anticipates that major domestic institutions such as life insurance companies, mutual funds, sovereign wealth funds, global FMCG giants like Unilever or Nestle, and private equity firms could be potential buyers of the stake.

What actions should investors take?

Avinash Gorakshakar, Director of Research at ProfitMart Securities, suggests purchasing ITC shares during declines due to its solid fundamentals and optimistic rural demand, which are anticipated to drive the company’s growth in the coming one or two quarters.

Gorakshakar noted that the market has been anticipating BAT’s stake sale for some time but is waiting for the valuation of the sale, which will be crucial in the short term.

How have ITC shares performed?

Over the past three months, ITC’s stock has dropped by more than 10%, and today’s decline marks a 20% decrease from its peak of Rs 499.6 per share.

In the last year, the stock has seen a gain of over 5%, compared to Nifty50’s increase of 30%.

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