Here's why BAT stake sale may not impact ITC, feel analysts
Motilal Oswal Financial Services had a buy rating with a target price of ₹515. Many other analyst firms have also provided an optimistic growth outlook for ITC. However, ITC's stock recently faced an avoidable overreaction from some investors following the BAT indication to reduce their shareholding for immediate cash requirements.
Following the recent ITC Investor Meet on December 12, 2023, investment bank Goldman Sachs emphasised in its report that the FMCG business stands as the primary long-term growth catalyst for the company. The report projects a substantial margin expansion for the ITC businesses over the next five years. The company has demonstrated a commendable transformation in capital efficiency and cash generation from FY18 to FY23, fundamentally transforming its ROCE across non-cigarette businesses.
BAT had highlighted in recent media interactions that their stake in ITC is not just a financial investment but a strategic one. They clarified that holding more than 25 percent shareholding is not necessary for them to exert strategic influence, including veto rights. With a 29.03 percent stake, BAT is the single biggest investor in ITC.
BAT's intention to monetise some shareholding beyond 25 percent is not a new development and aligns with their previously expressed intentions. While acknowledging ITC's strong performance and future growth potential, BAT had stated that they recognise their significant shareholding offers an opportunity to release and reallocate capital. JP Morgan, in its commentary on the ITC Q3 FY24 result, talked about the company strengthening its competitive position in various FMCG categories.
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