ITC shares in focus on report BAT may sell 4% stake for up to Rs 21,000 crore

Shares of cigarette-to-chips conglomerate ITC Ltd, which are down 13 per cent in the last one month, will be in focus on Tuesday morning on report the shareholder British American Tobacco (BAT) was working with Wall Street banks Bank of America and Citi to pare some of its stake in the domestic cigarette maker in a bid to raise up to Rs 21,000 crore ($2.5 billion). BAT is seen selling 3.5-4 per cent in ITC, ET reported quoting sources.

BAT owned 29.03 per cent stake in the cigarette maker, at the end of December quarter. Its total stake in ITC was worth Rs 1.47 lakh crore at ITC's market capitalisation of Rs 5,08 lakh crore. Monday. The fresh move by BAT, which sells cigarettes under brands such as Kent, Lucky Strike and Dunhill, may potentially help it prune leverage and resume a share buyback programme, the report suggested.

On ITC, BAT in its preliminary results for the year ended December 31 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.

"Our shareholding in ITC has existed in one way or another since the early 1900s and is subject to numerous share capital changes and regulatory restrictions. We have been actively working for some time on completing the regulatory process required to give us the flexibility to monetise some of our shareholding and will update you at the earliest opportunity," it said.

To recall, a few brokerages reduced their earnings estimates on ITC by 3-5 percentage points following ITC's Q3 results, even as they stayed positive on the long-term prospects of the FMCG firm.

After a strong run in the last few quarters, cigarettes volume came under pressure in the December quarter, thanks to the pressure in the mass-end and high base. The premium offerings continue to sustain a healthy run though, Emkay Global noted.

For ITC, the volume decline was 2 per cent in Q3. This is against a mid-single digit volume growth for VST and a decent 16 per cent volume growth for Godfrey Phillips.

Jefferies recently cut its rating on ITC to 'hold' from 'Buy' and reduced its target price for ITC shares to Rs 430 from Rs Rs 520.