British American Tobacco (BAT) Slashes ITC Stake for Strategic Flexibility, Retains Board Influence
IT Corporation's move is a strategic, not a financially driven decision: British American Tobacco
In a bold move, British American Tobacco (BAT) has reduced its stake in ITC from 25.4% to 22.9%, netting a whopping Rs 12,927 crore. This strategic shift was revealed by BAT's CEO Tadeu Marroca during an investor call. The shares, priced at Rs 413 apiece, were offloaded in a block deal that took place last week.
While this significant stake reduction might seem like a financial maneuver, Marroca emphasized that it was strategic in nature. He pointed towards the Indian market's robust demographics, growing GDP, and per capita income as key drivers for this move. ITC, with its strong distribution networks, leadership in tobacco and cigarettes, and long-standing relationship with BAT, perfectly positioned the company to capitalize on these growth opportunities.
Marroca reassured that BAT would retain two directors on ITC's board to maintain its influence in the boardroom. Despite the stake reduction, BAT remains ITC's largest investor.
The proceeds from the stake sale will be used to extend BAT's existing share buyback program by an additional Rs 2,310.6 crore, bringing the total amount to Rs 12,714 crore. This move demonstrates BAT's commitment to optimizing its capital structure and creating shareholder value.
The London-based nicotine products seller had last sold 436 million shares, or about 3.5% of ITC, in March 2024, raking in Rs 17,491 crore. On Tuesday, ITC shares declined 0.61% versus the previous day's close at Rs 416.80 apiece on the BSE, despite the broader market's decline.
In a separate development, ITC reported a multifold growth in its Q4FY25 consolidated net profit to Rs 19,727 crore, attributable to exceptional items. Excluding these exceptional items, ITC's Q4 profit rose 3% year-on-year to Rs 5,155 crore. Q4 revenue increased 10% year-on-year to Rs 20,376 crore.
Analysts tracking ITC remain bullish, with 38 out of 40 maintaining a 'buy' rating, one recommending a 'hold,' and one suggesting 'sell.' The average 12-month consensus price target implies an upside of 14.9%.
Check out our website or app for more business news, stock market quotes, and industry insights
Insight:
By reducing its stake in ITC, BAT is aiming to enhance its financial flexibility to pursue strategic opportunities, reduce leverage, and optimize its capital allocation across global operations. Despite the stake reduction, BAT remains a significant shareholder in ITC, ensuring continued influence on the board and strategic direction of the company. This move underscores BAT's long-term investment strategy in ITC while addressing potential overhang risk by distributing shares to institutional investors who are likely to hold them long-term.
- British American Tobacco (BAT) has utilized the proceeds from the sale of ITC shares to boost its existing share buyback program, indicating its commitment to improving shareholder value through strategic financial investments.
- The announcement of Defi Market, a forthcoming decentralized financial platform, has sparked discussions in the general-news sector regarding its potential impact on businesses and markets, particularly in finance and investment, given its disruptive nature.
- The shift in British American Tobacco's (BAT) stake in ITC signifies a calculated business move aimed at financial flexibility, while ensuring continued influence via board representation, enabling the company to capitalize on the Indian market's growth opportunities.
