BAT stake sale unlikely to have any long-term impact on ITC, say analysts

The stake sale will not have any bearing on the ITC Hotels spinoff, which should proceed as planned.

Trade

• Watchlist
• Portfolio
• Message
• Set Alert

 

 

Choose Stock Exchange: BSE LIVE NSE LIVE

26 Aug, 2025 12:21

Volume

Todays L/H

More

×

ITC’s largest shareholder, British American Tobacco (BAT), has said that it would consider paring its 29.02 percent stake in the cigarettes-to-hotels conglomerate. Analysts believe such a move will have no major impact on the firm.

“We don’t need to have more than 25 percent shareholding in ITC to have a strategic influence, including veto rights. Today, we have more than that,” said Tadeu Marroco, CEO, British American Tobacco (BAT).

Currently, the ITC shares held by BAT clock in at Rs 1,63,200 crore, going by the company’s current market-cap, at Rs 451.05 per share, as of 2.48 pm on the NSE.

If BAT were to pare its stake by four percentage points, the total value of the shares offloaded would be around Rs 22,500 crore.

Also Read | ITC’s future-ready plans: Diversification, innovation and cost-optimisation keep brokerages bullish

The stake sale might be a bid by BAT to reduce its debt levels, while also meeting India’s stringent rules for foreign ownership in tobacco companies.

ITC shares came under pressure on December 18, slipping 1.5 percent intraday.

Given the news, Omkar Kamtekar, research analyst, Bonanza Portfolio, said the shares might see a minor correction in the short-term.

ITC has no promoters, instead the largest stakeholders in the company are FIIs and DIIs, who own 43.3 percent and 42 percent of the conglomerate, respectively. As of the September quarter data, the public held 14.7 percent.

Gaurang Shah, Senior VP, Geojit Financial, concurred with Kamtekar’s view, noting that the counter might see a reaction in the short term, but there is likely no lasting effect from the proposed stake sale in the long-term. ITC’s long-term drivers are firmly in place: along with increased focus on and profitability of the FMCG business, the dependence on the tobacco business is reducing.

Also Read | ITC’s largest shareholding open to paring stake; notes challenges on complex FDI rules

The company is poised to create long-term value for shareholders, said analysts. “As a result, we do not expect any meaningful downside to the share price performance in the medium-to-long term,” added Parth Shah, Research Analyst, StoxBox.

The complexity of divesting ITC’s shares is immense and there are two key pain points. India imposes restrictions and limitations on foreign ownership in domestic tobacco companies, said BAT CEO Marroco. “There are specific RBI approvals that are required in respect of any action-taking about our stake, and this adds a significant level of additional bureaucracy,” he added. As a result, “the universe of buyers is limited” for ITC shares, according to the chief executive.

According to analysts that might be true in the context of finding strategic buyers. However, there might be enough appetite for the stock among institutional investors.

Gaurang Shah said that the question of whether the buyer will be a single entity or multiple institutional investors will need to be addressed, but given ITC’s performance over the past quarters, it shouldn’t pose an issue.

“The domestic money flow is very strong; mutual funds will be more than happy to buy out any stake,” added Rajat Mehta, CEO, Wealth Management, Mehta Equities. Omkar Kamtekar added that DIIs would see the sale as an opportunity to create fresh positions or increase their holding.

“ITC continues to perform extremely well. It’s accretive for BAT in terms of performance,” Tadeu Marroco noted. BAT sees a longer runway for future share price outperformance in value creation in ITC, since there are plenty of opportunities for ITC’s share price to grow.

The company continues to be one of the top picks for analysts as the hotels-to-tobacco conglomerate solidifies its strategy. Analysts maintain an optimistic outlook on ITC, citing factors such as recovering rural growth, growth in non-cigarette segments, and the hotels segment being on track to list independently.

The stake sale will not have any bearing on the ITC Hotels spinoff, which should proceed as planned. “Considering the strong growth levers, value unlocking via the Hotels business and recovery in the FMCG sector as rural demand makes a comeback, ITC is poised to create long-term value for shareholders,” said Kamtekar.

Overall consumption growth has been better in urban areas, compared to rural regions, said Motilal Oswal, but signs of improvement in the rural markets are visible. The premium portfolio is thriving in urban areas.

After being the biggest meme stock of the past few years, ITC’s shares broke out of a multi-year consolidation phase to more than double investor wealth since 2022. Year-to-date, shares of the conglomerate have rallied 34 percent, leading ITC to become the world’s third largest tobacco company, surpassing British American Tobacco.