Recently, Indian financial media moneycontrol reported that British American Tobacco (BAT), ITC’s largest shareholder, is considering potentially reducing its 29.02% stake in the consortium.
According to reports, the current market value of British American Tobacco's ITC shares is 1,632,000 billion Indian rupees, with a value of 451.05 Indian rupees per share. If BAT reduces its stake by four percentage points, the total value of the shares that will be sold off will be about INR 2,250 billion.
In fact, the stake sale may be an attempt by BAT to reduce its own debt while also satisfying India's strict rules on equity stakes in foreign tobacco companies. ITC's stock came under pressure on December 18, falling 1.5% on the day.
Taken together, ITC does not have any promoters. The company's largest shareholders are foreign institutional investors and domestic institutional investors, who hold 43.3% and 42% of the company's shares respectively. According to September quarter data, the share held by the public was 14.7%.
Of particular importance is the analyst's strong belief that the company will create long-term value for shareholders in the future. "Therefore, we do not expect any material decline in the stock price in the medium to long term." This is the view of Parth Shah, a research analyst at StoxBox.
So, will there be buyers willing to take over these shares?
According to Rajat Mehta, CEO of wealth management firm Mehta Equities, "Fund flows in the country are very strong; Republic Foundation is more than happy to buy any stake." On this issue, others agree, They believe domestic institutional investors will view the sale as an opportunity to establish a new position or increase their holdings.
In addition, British American Tobacco CEO Marroco believes that the sale of ITC shares is extremely complicated due to the restrictions and restrictions imposed by India on foreign ownership of domestic tobacco companies.
“For any action on our part regarding shares, specific RBI approval is required, which adds a lot of additional bureaucracy,” he noted. As a result, he added, “the pool of buyers for ITC shares is restricted”.
Although ITC's share price may see more upside in the future, in terms of the current strategic buyers in this article, analysts think this may be correct.
"Whether the buyer will be a single entity or multiple institutional investors will need to be resolved, but given ITC's performance over the past few quarters, this should not be an issue." Gao Lang, senior vice president at Geojit Financial Gaurang Shah said.
The research found that tobacco companies' performance is bound to suffer in the short term, but the stake sale is unlikely to have a lasting impact on the company in the long term. ITC's long-term driving factors: the emphasis on fast-moving consumer goods business and the improvement of profit levels, as well as the reduction of dependence on the tobacco business, are in steady progress.
Year to date, the group's shares have risen 34%, making ITC the world's third-largest tobacco company, surpassing British American Tobacco.