British American Tobacco signals plan to pare ITC stake

British American Tobacco (BAT), the biggest shareholder in ITC Ltd, is looking to pare its stake in the Indian conglomerate, the company said in its earnings release this week.

BAT’s shareholding in India’s biggest cigarette maker has existed “in one way or another since the early 1900s”, and “was subject to numerous share capital changes and regulatory restrictions,” the company said.

“We continue to seek and evaluate all opportunities to enhance balance sheet flexibility and, as part of this, we regularly review our stake in ITC,” BAT chief executive Tadeu Marroco said.

BAT held a 29.02% stake in ITC by the end of 2023, down from 29.19% in 2002-end, its earnings press release said.

“We have been actively working for some time on completing the regulatory process required to give us the flexibility to monetize some of our shareholding,” Marroco said, while adding, “I look forward to working with my colleagues around the globe to build a smokeless world and drive a better tomorrow.”

ITC shares declined 4% on Thursday before recouping some of its losses in early trading on Friday.

BAT’s plans to cut its stake in ITC comes even as it is “further optimizing” its geographic footprint by exiting 36 markets, though it pointed to a “highly complex regulatory and administrative restrictions” in its earnings presentation.

“This is in line with our plan to exit non-strategic combustibles markets, where we don’t see a near-term opportunity to execute our new category strategy,” Marroco said.

BAT holds its stake in ITC through Tobacco Manufacturers (India) Ltd, Myddleton Investment Co. Ltd, and Rothmans International Enterprises.

The BAT group’s share of post-tax results of associates and joint ventures for the past year was led by the robust performance of its main associate, ITC, in India, the earnings release said. The group’s share of ITC’s post-tax results was 19.8% higher at £616 million against £514 million in 2022.

“The movements are largely due to the economic recovery in India in 2023 from covid, which led to difficult trading conditions in 2022, more than offsetting a translational foreign exchange headwind,” the group added.

On 24 July, ITC had announced a proposed demerger of its ‘hotels business’ under a scheme of arrangement by which 60% of the newly incorporated entity would be held directly by ITC’s shareholders proportionate to their shareholding in ITC.

On 14 August, ITC’s board approved the scheme of arrangement subject to necessary regulatory approvals. The demerger is expected to be completed by the end of 2024, the earnings release said.