ITC slumps to 8-month low; slips 2% as BAT may sell partial stake this week

Shares of ITC hit an eight-month low of Rs 399.30, down 2.5 per cent on the BSE in Tuesday's intraday trade in an otherwise firm market, on report that British American Tobacco Plc (BAT) is planning to sell a part of its stake in its Indian partner this week.

The stock of biggest cigarettes and second largest fast moving consumer goods (FMCG) company was trading at its lowest level since April 21, 2023. It had hit a 52-week low of Rs 369.70 on March 17, 2023. The stock has corrected 20 per cent from its record high level of Rs 499.60 hit on July 24, 2023.

At 10:30 am; ITC was trading 1.9 per cent lower at Rs 401.75, as compared to 0.61 per cent rise in the S&P BSE Sensex. The counter has seen huge trading volumes. A combined 15.6 million equity shares of ITC have changed hands on the NSE and BSE.

According to a Bloomberg report, London-listed BAT has been speaking with Bank of America Corp. and Citigroup Inc. about a potential divestment of around $2 billion to $3 billion in ITC stock through block trades. CLICK HERE FOR FULL REPORT

BAT holds 29.03 per stake in ITC through Tobacco Manufacturers (India) Limited, Myddleton Investment Company Limited, and Rothmans International Enterprises Limited. The UK company said last month that it’s considering monetizing part of its holding.

Tadeu Marroco, Chief Executive of BAT, while announcing December quarter results had said that the company continues to pursue all opportunities to enhance balance sheet flexibility and, as part of this, the company regularly reviews its stake in ITC.

Meanwhile, analysts at Axis Securities believe ITC is likely to face near-term pressure as the demand environment is expected to remain challenging, as witnessed by most FMCG companies.

However, its long-term growth outlook remains strong as most businesses (excluding Agri/Paper) are on track as growth in cigarette volume has normalised but it remained stable owing to stable taxation, market share gains from illicit cigarettes and new products launches.

The company’s FMCG business has reached the inflection point as EBIT margins continue to increase, driven by the ramp-up in outlet coverage, effective implementation of localization strategy, premiumization, use of demand and supply side technologies, and moderating raw material input costs.

The demerger of the hotel business will strengthen ITC's balance sheet and improve return ratios. In addition, the reasonable valuation provides a margin of safety, the brokerage firm had said in the result update.