BAT planning to reduce stake in ITC

British American Tobacco (BAT) is the largest shareholder in ITC holding 29.03% stake. It has informed that it is looking to reduce it’s stake as part of the Capital reallocation strategy.

“We continue to pursue all opportunities to enhance balance sheet flexibility and, as part of this, we regularly review our stake in ITC. We recognise that we have a significant shareholding which offers us the opportunity to release and reallocate some capital,” BAT said in a release.

Key points to note –

  • BAT has said that it is not seeking to cut its stake in ITC to less than 25% now, as that is the minimum they need to retain influence in the Indian tobacco maker.
    • This means it will maximum sell 4.03% stake in the foreseeable future – taking away concerns about a major stake sale.
  • In December 2023, the BAT management had highlighted the challenges in selling their stake in ITC, primarily due to the Indian government’s ban on FDI in tobacco and hence limited potential buyers; leading to a possible discount in the selling price.
    • BAT is in talks with the regulators for potential flexibility to monetise the stake and expects to make some related announcements at the earliest.

Although maybe a short term headwind for the stock price, I don’t see any impact of this on ITC’s underlying business model or prospects.

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