BAT considers reducing its stake in ITC as complex procedures may make a takeover more difficult

British American Tobacco (BAT) is considering reducing its stake in ITC Limited. This move is not expected to have a significant impact on the company. Despite the change in shareholding, ITC's development direction remains clear.

Recently, according to Indian financial media Moneycontrol, BAT, the largest shareholder of ITC, is considering possibly reducing its 29.02% stake in the conglomerate.

Reportedly, the value of the ITC shares held by BAT is ₹163,200 crore, with a per-share value of ₹451.05. If BAT reduces its stake by four percentage points, the total value of the shares to be sold will reach approximately ₹22,500 crore.

In fact, selling shares may be BAT's attempt to reduce its own debt while also complying with India's strict regulations on foreign ownership in tobacco companies. ITC's stock faced pressure on December 18, with an intraday drop of 1.5%.

Overall, ITC has no promoters; the largest shareholders are foreign institutional investors and domestic institutional investors, holding 43.3% and 42% of the company, respectively. According to September quarterly data, the public holds a 14.7% stake.

Importantly, analysts firmly believe that the company will create long-term value for shareholders. "Therefore, we do not expect any substantial decline in the stock price in the medium to long term," said Parth Shah, a research analyst at StoxBox.

So, will there be buyers willing to take over these shares?

According to Rajat Mehta, CEO of wealth management firm Mehta Equities, "The domestic capital flow is very strong; the Republic Fund is very willing to purchase any shares." Others also agree, believing that domestic institutional investors will see this sale as an opportunity to establish new positions or increase their holdings.

Additionally, BAT CEO Marroco believes that the complexity of selling ITC shares is greatly increased due to India's restrictions on foreign ownership in domestic tobacco companies.

He noted, "Any action we take regarding shares requires specific approval from the Reserve Bank of India, which adds a significant amount of additional bureaucratic procedures." He added that as a result, "the pool of potential buyers for ITC shares is limited."

Although ITC's stock price may see more upward potential in the future, analysts believe that for the current strategic buyers, this may be the right move.

"Whether the buyer will be a single entity or multiple institutional investors needs to be resolved, but given ITC's performance over the past few quarters, this should not pose a problem," said Gaurang Shah, senior vice president at Geojit Financial.

Research indicates that the performance of tobacco companies is bound to be affected in the short term, but in the long run, this share sale is unlikely to have a lasting impact on the company. ITC's long-term drivers: emphasis on fast-moving consumer goods business and improvement in profit levels, along with a reduction in reliance on tobacco business, are steadily progressing.

Year-to-date, the group's stock has risen 34%, making ITC the third-largest tobacco company in the world, surpassing British American Tobacco.