British American Tobacco Plc (BAT), the single-largest shareholder in ITC, plans to sell its stake in the soon-to-be demerged hotel business of the Indian conglomerate, said chief executive Tadeu Marroco. He said BAT is also exploring ways to “unlock shares” in ITC to achieve “financial flexibility” for the future.
BAT is also looking to roll out its oral tobacco products in India. Marroco didn’t specify if the plan is to launch the products through ITC or on its own. /is it allowed to do on its own?/ (they would need separate approval if on their own since they have local subsidiaries in the country…)
BAT will directly own 15.32% in the demerged listed entity, ITC Hotels, as foreign direct investment. This will make BAT the second largest shareholder in the hospitality company after ITC’s promoter holding of 39.93%, according to the demerger document. The demerger scheme was approved by the National Company Law Tribunal on October 4.
ITC said previously that it expects to complete the entire demerger process including the public listing of ITC Hotels this financial year. ITC is the second largest hospitality company in India, while it is a leader in cigarettes, paper and packaging industries, and the second largest listed company in food FMCG products.
“ITC Hotels, definitely there is no intention for us to be shareholders in hotels in India. Let’s be very clear. So, whenever we believe there is the right timing, we’re going to sell it,” Marroco told institutional investors during BAT’s capital markets day meet last week in Southampton, UK.
He said the divestment of ITC Hotels’ stake is part of BAT’s plans to “create financial flexibility” where it can generate enough cash to continue its “sustainable buy-back programme”.
BAT is undertaking the share repurchase programme till next year.
This March, the company sold a 3.5% stake in ITC for Rs 16,690 crore in a block deal to institutional investors to generate cash for its buy-back programme which reduced its holding in the Indian conglomerate to 25.51%. As of September, BAT owned 25.45% in ITC.
The other major shareholders are Life Insurance Corporation of India with a 15.17% stake and Specified Undertaking of the Unit Trust of India with 7.79%.
ITC didn’t respond to ET’s email queries.
While Marroco hinted at BAT further trimming its stake in ITC, he emphasised that it is a “cumbersome process” and “there is a foreign direct investment ban (in tobacco sector) in India, which means that if you sell, you don’t come back”. He noted that ITC is a “very well run, very successful company that performs at a pace of growth that is even much higher than the average of BAT”.
BAT is working with ITC to “unlock” its shareholding in the Indian company to get the financial flexibility for the future. “This (ITC) is the largest asset in our balance sheet…and being so, it is natural that the main board (of directors) will be constantly reviewing the best way to deploy the assets that we have there,” said Marroco.
He said unlocking shares in ITC “is not as straightforward as one could think because the central bank in India, to certify the sales, they require us to prove all the history of the shareholding that dates back to the 1930s, and we have to collect board meetings and all that every time we have a bonus split and all that.”
“I’m not being dogmatic about ITC, but I’m just trying to put into perspective and from one side, the attractiveness of the market, the fact that ITC is a fantastic company, from the other side, a very large stake for BAT and an important asset to keep financial flexibility for the group, underpinning all that, our efforts to get with ITC to unlock the share,” said Marroco.
The London-based tobacco firm is also looking to enter the “modern oral” tobacco product market in India since the consumption of oral tobacco in the country is the highest in the world by volume. BAT’s oral product comprises nicotine pouches which consumers place between their gum and the upper lip, during which nicotine along with other flavours are released and absorbed.
“So, the size of the oral consumption in India is bigger than the size of all the US added to Nordics and all the other markets where we have consumption of oral today,” he said.
Marroco said India has a lower lung cancer rate but there are more incidences of oral cancer due to consumption of oral tobacco products.
He claimed that BAT’s modern oral products have minimal risks. “We do believe that with the right approach in terms of science evidence-based, we have something that could be quite powerful in India,” said Marroco.
