BAT’s shareholding in ITC has existed in one way or another since the early 1900s, when the British company acquired a controlling stake in the Indian company, then known as Imperial Tobacco Company. Over the years, BAT’s stake in ITC has changed due to various share capital changes and regulatory restrictions. In 2022, BAT increased its stake in ITC from 25.96 per cent to 29.03 per cent by buying shares worth Rs 6,690 crore from SUUTI, a government entity.
BAT said it recognises that it has a significant shareholding in ITC, which offers it the opportunity to release and reallocate some capital. “We continue to pursue all opportunities to enhance balance sheet flexibility and, as part of this, we regularly review our stake in ITC,” BAT chief executive officer Tadeu Marroco said in a statement.
BAT’s stake sale plan and timeline
BAT said it has been working for some time on completing the regulatory process required to give it the flexibility to monetise some of its shareholding in ITC. However, it did not disclose the details of the process or the timeline for the stake sale. “We have been actively working for some time on completing the regulatory process required to give us the flexibility to monetise some of our shareholding and will update you at the earliest opportunity,” Marroco said.
Marroco said BAT wants to keep a minimum of 25 per cent stake in ITC to retain its veto rights and influence in the company. “Based on the local legislation, we need to have the minimum 25 per cent of shareholders to keep your veto rights. We would like to do it in the first phase. This means that given the fact that we have above 29 per cent, there is space for us to reduce our shareholding,” he said.
BAT’s stake sale impact on ITC
BAT’s stake sale plan in ITC has raised concerns among some analysts and investors, who fear that it may affect the valuation and performance of the Indian company. ITC’s shares fell 4.04 per cent on Thursday to close at Rs 414.45 on the BSE, after BAT announced its plan to sell some of its stake in ITC.
However, some analysts said that BAT’s stake sale may not have a significant impact on ITC, as the Indian company has diversified its business portfolio and reduced its dependence on cigarettes. ITC has expanded its presence in sectors such as FMCG, hotels, agri-business, and paper, and has also increased its dividend payout ratio to reward its shareholders.
ITC’s contribution to BAT’s earnings has also declined over the years, due to the challenging operating environment for the tobacco industry in India. According to BAT’s annual report, ITC’s share of BAT’s post-tax results was 19.8 per cent higher at £616 million in 2023, compared to £514 million in 2022. However, this was mainly due to the economic recovery in India from Covid-19, which offset the foreign exchange headwind. ITC’s share of BAT’s post-tax results was £647 million in 2021 and £763 million in 2020.
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