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

The RBI approvals also pose a key headwind for the possible trimming of stake.

ITC’s largest shareholder, British American Tobacco, indicated that it would be open to trimming its 29.02 percent stake in the cigarettes-to-hotels conglomerate.

“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,” added Marroco.

The complexity of divesting ITC shares is immense and there are two key pain points, according to the chief executive. India imposes restrictions and limitations on foreign ownership in domestic tobacco companies, said Tadeu Marroco, CEO, of British American Tobacco (BAT). However, since international buyers have extremely tight rules, “the universe of buyers is limited.”

The RBI approvals also pose a key headwind for the possible trimming of stakes. “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,” said Marroco.

Also Read | ITC: Moderation in growth trajectory across cigarette, FMCG businesses

The BAT CEO also said that ITC remains one of the most undervalued FMCG companies in India, despite having a strong share price performance over the last couple of years. “ITC is a company that continues to perform extremely well. It’s accretive for BAT in terms of performance,” he noted.

BAT sees a longer runway for future share price outperformance in value creation in ITC, since there are plenty of opportunities for share price to continue to grow in ITC.

When questioned about ITC's plans to demerge its hotel unit, Marroco said that BAT has no intention to be in the hotel business. However, ITC will still own 6 percent of the share of the hotels. "But the problem is not the hotels, it’s the tobacco that has the FDI, so there is FDI involved in the hotels," said Marroco.

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

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.