In a recent development that has grabbed market attention, British American Tobacco (BAT) is reportedly working with Wall Street banks Bank of America and Citi to explore the possibility of selling a 3.5-4% stake in the conglomerate ITC Ltd. The move aims to raise up to Rs 21,000 crore ($2.5 billion) and could potentially assist BAT in reducing leverage and reinstating a share buyback program.
At the end of the December quarter, BAT held a 29.03% stake in ITC, valued at Rs 1.47 lakh crore based on ITC’s market capitalization of Rs 5.08 lakh crore. The potential stake sale, as reported by Economic Times, follows BAT’s continuous efforts to enhance balance sheet flexibility, and the conglomerate has expressed its intention to release and reallocate some capital.
The decision to explore the sale is part of BAT’s broader strategy, as mentioned in its preliminary results for the year ended December 31. The conglomerate acknowledges its significant shareholding in ITC, dating back to the early 1900s, and has been actively working to complete the regulatory process required to monetize a portion of its shareholding.
Market analysts suggest that this move could positively impact BAT’s financial position, potentially paving the way for a share buyback program. The news has put ITC shares under the spotlight, especially considering the recent 13% decline in the conglomerate’s stock over the last month.
Despite ITC’s Q3 results leading to a reduction in earnings estimates by some brokerages, long-term prospects for the FMCG firm remain positive. The December quarter witnessed a 2% decline in cigarette volumes for ITC, influenced by mass-end pressures and a high base. However, premium offerings maintained a healthy performance.
Jefferies recently downgraded its rating on ITC to ‘hold’ from ‘buy’ and adjusted its target price for ITC shares to Rs 430 from Rs 520.
Investors and market observers are keenly watching for further developments, and any stake sale by BAT could have a significant impact on ITC’s stock performance in the coming days.
