• Sunday, March 03, 2024


British American Tobacco wants to slash stake in India’s ITC; here’s why

Though eager to make it happen quick, BAT’s CEO Tadeu Marroco said the process is intricate and the timing not certain due to the need for clearance from India’s central bank.

Representational Image (Photo by Stu Forster/Getty Images)

By: Shubham Ghosh

The LONDON-LISTED company behind Lucky Strike and Dunhill cigarettes is aiming to reduce its £15 billion stake in an Indian conglomerate, sparking a significant rise in its share price as investors embrace the possibility of a buyback.

British American Tobacco (BAT) intends to decrease its ownership of ITC, a conglomerate involved in consumer goods, hotels, and paper products, currently standing at over 29 per cent.

The announcement of these plans, made alongside a substantial annual loss and a mixed outlook, propelled BAT shares—a favorite among income investors—up by 7.4 percent, or 172p, to £24.91 on the London Stock Exchange. This increase was further supported by an enhanced dividend.

Read: Economists back tobacco taxation hike for achieving Modi’s $5t economy vision

Tadeu Marroco, BAT’s CEO and former finance chief, expressed the company’s desire to initiate the divestment “as soon as we can.” However, he cautioned that the process is intricate and the timing not certain due to the need for clearance from India’s central bank.

BAT also aims to maintain a strategic influence over ITC by refraining from selling below a regulatory threshold of 25 per cent.

Read: Raise legal age to buy tobacco to prevent million cancer cases, says UK charity

The company’s holding in ITC has roots tracing back to the early 1900s and has gradually diminished over time. Marroco, aged 53, told The Times UK, “We have been actively working on completing the regulatory process required to give us the flexibility to monetise some of our shareholding,

BAT seeks to reduce its leverage to approximately 2.5 times earnings this year, following which it “will evaluate all opportunities to return excess cash to our shareholders”.

Imperial Brands, BAT’s FTSE 100 rival based in Bristol, announced a £1.1 billion share buyback scheme in November, following an earlier £1 billion program, both of which received favorable responses from investors. Last week, Altria, the owner of Marlboro cigarettes in the United States, revealed a $1 billion program as well.

The tobacco industry continues to generate substantial cash flow but is shrinking in major mature markets like the US. This trend has spurred companies to invest in introducing new non-combustible products such as e-cigarettes and heat-not-burn devices while navigating stricter regulations and returning cash to investors from traditional tobacco businesses.

Highlighting these challenges, BAT recorded a significant write-down in December on the value of its US cigarettes business, primarily associated with brands such as Newport and Camel, among others, amounting to £25 billion.

BAT is contending with a contracting market exacerbated by consumers switching to cheaper brands and illicit disposable vapes, alongside uncertainty surrounding a potential menthol ban in the US. This pivotal development led to a sharp decline in BAT shares, hitting a 13-year low last December.

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