British American Tobacco (BAT), which has been actively working to “monetise” some of its shareholding in ITC, on Thursday said it wants to keep “a level of influence” in the diversified conglomerate which is transforming itself.

For the quarter ended December 2023, BAT held a 29.03 per cent stake in ITC, which is the market leader in cigarettes in India. The UK-based cigarette major is the largest shareholder of the Kolkata-headquartered company.

“...we continue to pursue all opportunities to enhance balance sheet flexibility and, as part of this, we regularly review our stake in ITC. We recognise that we have a significant shareholding which offers us the opportunity to release and reallocate some capital,” said Tadeu Marroco, Chief Executive, British American Tobacco p.l.c. after declaring the company’s preliminary results for the year ended December 31, 2023.

Marroco said his company’s 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,” he added.

ITC stocks fall

After British American Tobacco said it has been working towards completing the regulatory process to pare some of its shareholding in ITC, the stock of the cigarette-to-soap maker fell 4.04 per cent on the BSE to end the day at ₹414.45 apiece.

Later, in a post-earnings conference call, Marroco said his company cannot ignore the fact that the major asset that it has in the balance sheet is the association with ITC as an associate. And that is the reason why BAT wants to keep a level of influence in the company.

“Based on the local legislation, we need to have the minimum 25 per cent of shareholders to keep your veto rights (in ITC). We would like to do it in the first phase. This means that given the fact that we have above 29 per cent, there is space for us to reduce our shareholding,” he pointed out.

He said ITC is a very highly cash generative company. The Group’s share of ITC’s post-tax results was 19.8 per cent higher at £616 million (2022: £514 million). The movements were largely due to the economic recovery in India in 2023 from COVID-19 which led to difficult trading conditions in 2022, more than offsetting a translational foreign exchange headwind.

To a set of questions from analysts, Marroco said it is “very difficult” for him to give a timeline on the proposed reduction of stakes in ITC.

He informed BAT has been working for some time with “people on the ground, closer with the authorities, mainly in the central bank” with the help of ITC, trying to reconstruct all the history of the shareholders that dates back to 100 years.

inorganic growth

“And through this period of time, as you can imagine, ITC has grown inorganically. So, which is another complexity. We have shares splits, we have subscriptions...we have to reconstruct all of this whole history. And that is where we are working for some time now. It is very difficult, very difficult for me to give you a timeline on that, other than to say that we are doing all we can to create this flexibility so the board can make an assessment in terms of capital allocation decision moving forward,” the Chief Executive pointed out.

He said ITC is a “fantastic company”, which is well run and well managed. “It is a very fast-growing company in a very fast-growing market with the most populous country in the world and contributing for BAT in terms of earnings, also in terms of cash because they have a very good policy in terms of dividend payouts and the share price actually has doubled in the last three years. So that is where we stand in terms of ITC holding,” Marroco added.