ITC block deal today: BAT to sell Rs 17K crore ITC shares; will it influence passive flows?

ITC Ltd shares will be in focus on Wednesday morning as British American Tobacco (BAT) Plc is said to be selling 3.5 per cent stake in the cigarette maker to institutional investors in block deals today. As per media reports, the price range for the proposed sale of shares is set at Rs 384-400.25 apiece, which was a 5 per cent discount to the prevailing market price at the lower end of the price band. Business Today could not independently verify the block deal reports.

Abhilash Pagaria of Nuvama Institutional Equities said the move would lead to $105 million inflows into domestic indices. He expects Expect a $65 million inflow, equal to 13 million shares, with a 0.9-day volume  impact. For Sensex, as per Nuvama Alternative math,  $38 million worth inflows are likely, which is 7.7 million shares, with a 0.5-day volume impact.

ITC shares fell 13.48 per cent to Rs 404.25 in 2024 so far. The stock is up 5.31 per cent in the past one year.

As global index providers (MSCI and FTSE) are already utilising 24 per cent as the float, which represents the maximum foreign ownership limit, Nuvama Alternative does not anticipate any weight increase in global passive indices.

Manish Chowdhury, Head of Research at StoxBox: "We believe that shares of ITC could be under pressure in the near term amid a large supply of shares. A near term top seems to be in place around Rs 500-odd levels which happened just before the announcement of the demerger of the hotel business into a new entity in August 2023. However, we remain constructive on the company from a medium to long term perspective owing to its strong brand recall and enormous runway for its FMCG business ahead."

Chowdhury said with inflation expected to moderate further ahead, especially the rural side, we expect volumes in the overall business to come back as we move forward. At the current valuation, we believe that most of the negatives are already priced in and investors could start considering adding the stock to their portfolio at every dip.

The London-listed BAT had in February said it was "actively working" to reduce its roughly 29 per cent stake in the cigarette maker ITC, which has interests in segments ranging from hotels to consumer packaged goods.

The stake sale would allow the maker of Dunhill and Lucky Strike cigarettes to pay down its debt and move faster towards the leverage range at which it could resume share buybacks. Also recently companies such as Whirlpool and Hyundai announced monetisation of their stakes in Indian companies.

BAT had in its preliminary quarterly results for the December quarter said it continued to pursue all opportunities to enhance balance sheet flexibility and, as part of this, it regularly reviewed its stake in ITC. "We recognise that we have a significant shareholding which offers us the opportunity to release and reallocate some capital," BAT said.