Analysts argue that the selling of BAT's share is unlikely to have a lasting effect on ITC

 Analysts argue that the selling of BAT's share is unlikely to have a lasting effect on ITC

Analysts argue that the selling of BAT's share is unlikely to have a lasting effect on ITC

British American Tobacco may be trying to lower its debt load and comply with India's strict regulations on foreign ownership of tobacco firms by selling off a share in the company.

British American Tobacco (BAT), which has the biggest holding in ITC, has said that it may reduce its 29.02 percent ownership in the cigarette to hotel conglomerate. Analysts predict that the corporation won't be significantly impacted by such a move.

"We can exercise our veto power and have strategic influence over ITC without needing to hold more than 25% of the company's shares." We have a lot more than that now," British American Tobacco CEO Tadeu Marocco said (BAT).

As of 2:48 PM on the NSE, BAT's holdings of ITC shares are valued at Rs 1,63,200 crore, or Rs 451.05 per share based on the company's market capitalization.

Around Rs 22,500 crore would have been the entire value of shares sold if BAT had cut its position by four percentage points.

BAT may be attempting to lower its debt load via the share sale in order to comply with India's strict regulations against foreign ownership of tobacco firms.

ITC's stock under pressure on December 18 and dropped 1.5% inside a single day.

According to Bonanza Portfolio research analyst Omkar Kamtekar, this news may cause a brief correction in stock prices.

ITC does not have a promoter, but FIIs and DIIs, who own 43.3% and 42% of the group, respectively, are the company's biggest investors. Data from the September quarter showed that the public had a 14.7% interest.

In line with Kamtekar's assessment, Gaurang Shah, senior vice president of Geojit Financial, said that while there could be an immediate response, the planned share sale is unlikely to have any long-term effects. The long-term motivators for ITC are set in stone: The FMCG industry is becoming more profitable and focused, which is decreasing reliance on the tobacco industry.

The business is expected to provide long-term value for shareholders, according to analysts. As a consequence, according to Parth Shah, research analyst at Stockbox, "we do not expect any meaningful deterioration in share price performance in the medium to long term."

Disinvesting ITC shares is quite difficult, and there are two main issues. According to BAT CEO Marocco, foreign ownership of indigenous tobacco firms is subject to limitations and restrictions in India. "We need specific RBI approval for any action pertaining to our stake, which adds a significant layer of additional bureaucracy," he said. Consequently, "the scope of buyers is limited" for ITC shares, the CEO claims.

Analysts speculate that this may hold true when looking for a strategic buyer. Nonetheless, institutional investors could have a big appetite for the stock.

According to Gaurang Shah, the question of whether the buyer would be a single organization or a number of institutional investors would need to be addressed, but this shouldn't be a problem considering ITC's recent success.

"Mutual funds will be very happy to buy any stake; domestic money flows are very strong," Mehta Equities' CEO of wealth management, Rajat Mehta, said. According to Omkar Kamtekar, DIIs would see the sale as a chance to grow their investment or add new positions.

perspective

"ITC is still doing really well. In terms of performance, this is advantageous for BAT," Tadeu Marocco said. Value creation at ITC, which has a lot to do with growing share price, is seen by BAT as going a long way toward future share price outperformance. Every opportunity is present.

Despite the hotels-to-tobacco conglomerate tightening its approach, the business continues to be one of experts' top favorites. Analysts have continued to have a positive view on ITC, pointing to things like the improvement in rural economy, the expansion of non-cigarette industries, and the hotels segment's planned independent listing.

The ITC Hotels spinoff will not be impacted by the equity sale and will continue to operate according to schedule. "Considering the strong growth levers, value unlocking through the hotel business and the recovery in the FMCG sector as rural demand has bounced back, ITC is poised to create long-term value for shareholders," Kamtekar said.

According to Motilal Oswal, while rural markets are beginning to show signs of recovery, total consumption growth has been stronger in urban regions than in rural ones. In cities, premium portfolio is doing quite well.

ITC shares, which had been the largest meme stock in recent years, emerged from a multi-year consolidation period and began to treble investors' wealth in 2022. With a 34% increase in the group's shares so far this year, ITC is in the lead. surpassed British American Tobacco to become the third-largest tobacco firm in the world.