British American Tobacco (BAT) has divested a 3.5% stake in ITC through a block deal worth Rs 17,500 crore , causing the stock to surge by over 8%

London-based British American Tobacco (BAT) likely divested a 3.5% stake in FMCG giant ITC through block deals to institutional investors, with an average selling price of Rs 404.40 per share. The stake sale amounts to approximately Rs 17,500 crore, with the buyer’s identity to be disclosed later.

BAT, renowned for brands like Dunhill and Lucky Strike, sold 43.68 crore shares, reducing its ITC ownership from 29% to 25.5%. Proceeds from the sale will be directed towards BAT’s share buyback program. BofA Securities and Citigroup were enlisted to manage the transaction initiated yesterday.

In the pre-market block window, approximately 43.7 crore ITC shares, equivalent to 3.5% of the company’s total equity, were traded. The shares fetched an average price of ₹400.4 each, resulting in a total transaction value of ₹17,491 crore, as per reports.

Earlier announcements from BAT indicated intentions to divest a 3.5% stake in ITC through block deals.

According to report, BAT, holding over 29% of ITC, planned to sell shares priced between ₹384 and ₹400.25 each, reflecting a 4–5% discount compared to ITC’s Tuesday closing price of ₹401.90 on the NSE.

As per a document reviewed , the deal imposes a 180-day lock-in period.

Post-sale, BAT’s ownership in ITC will stand at 25.5%, ensuring it remains above the pledged 25% mark as previously communicated to investors on February 9.

BAT’s CEO, Tadeu Marroco, expressed that the transaction allows for an expedited commencement of a sustainable share buyback program. It also aids in the ongoing effort to reduce leverage towards a targeted range of 2–2.5X adjusted net debt/adjusted EBITDA. Marroco emphasized BAT’s commitment to retaining a significant stake in ITC amidst its growth trajectory.

Amidst reports of BAT’s stake sale, ITC shares have witnessed a correction of nearly 20% from their peak and a decline of more than 13% year-to-date (YTD).

Analysts view the decline in ITC’s shares as an opportunity to buy at favorable prices.

Manish Chowdhury, Head of Research at StoxBox, noted that while ITC’s shares hit a near-term peak around ₹500 just before the announcement of the hotel business demerger in August 2023, the company remains promising in the medium to long term due to its strong brand recognition and substantial growth potential in the FMCG sector.

Chowdhury anticipates a moderation in inflation, particularly in rural areas, which could lead to a resurgence in overall business volumes in the future. He suggests that given the current valuation, most downsides are already factored in, making it an opportune time for investors to consider adding ITC to their portfolios during market dips.

CLSA, a brokerage firm, sees this downturn as an opportunity in a volatile market and has raised its rating on ITC stock to ‘Buy’, setting a target price of ₹486 per share, as reported by CNBC-TV18.

From a technical standpoint, ITC stock appears to have found support around the ₹398 level following a notable decline from its peak.

“Presently, after a brief consolidation, there’s a positive bias with a bullish candle formation. The Relative Strength Index (RSI) indicates a favorable reversal trend, suggesting potential upward movement in the coming days. Given the promising chart setup, we recommend buying the stock with a target price of ₹465, while setting a stop loss at ₹396,” advised Vaishali Parekh, Vice President of Technical Research at Prabhudas Lilladher.

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