British American Tobacco (BAT), the largest shareholder in ITC with a 29.02% stake, is considering reducing its stake in the Indian conglomerate to approximately 25%. This move comes as BAT aims to strategically influence ITC while also addressing its own debt concerns.
Reducing the stake in ITC poses challenges due to India’s FDI rules for the tobacco industry. These rules restrict international companies from investing in the Indian tobacco sector. Additionally, specific approvals from the Reserve Bank of India (RBI) are required for any action related to BAT’s stake, adding a significant level of additional bureaucracy.
BAT CEO Tadeu Marroco has expressed that BAT does not need more than a 25% shareholding in ITC to maintain a strategic influence, including veto rights. Currently, BAT holds a stake of about 29% in ITC. Marroco believes that ITC’s performance has been strong, and the company is undervalued compared to most FMCG companies in India. He sees a longer runway for future share price outperformance and value creation in ITC.
About ITC
ITC is India’s leading cigarette manufacturer, accounting for three out of four cigarettes sold legally. It has also become the largest company in the FMCG sector and operates the second-largest hotel chain in India. Furthermore, ITC is the largest private sector company in agri-business and runs the largest paper business.
RTM Watch’s Take
Reducing its stake in ITC could be a strategic move for British American Tobacco. By maintaining a significant but slightly reduced stake, BAT can continue to influence ITC’s strategic decisions while addressing its own debt concerns. The potential divestment also aligns with BAT’s focus on core operations and could provide opportunities for both companies to explore new avenues for growth. However, navigating India’s strict FDI rules and obtaining necessary approvals from the RBI may pose challenges. Overall, this move reflects the dynamic nature of the Indian market and the strategic considerations of multinational companies like BAT.
