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Informist, Thursday, Feb. 20, 2025

 

By Avishek Rakshit

 

KOLKATA – British American Tobacco, the largest shareholder of ITC Ltd., will continue to review its 25.5% shareholding in the cigarettes major, but will remain invested to further its interests in the new-age tobacco business in accordance with Indian regulations.

 

"ITC is a well-managed, highly successful business with highly differentiated distribution capabilities and a dominant share (>70%) of the Indian tobacco market. We have a valued strategic relationship with the company and believe there is significant potential for further cooperation which New Category regulation may unlock over time," an official at BAT told Informist on Thursday in an emailed response to a question asked during an analyst meet on Feb. 13 after BAT declared its preliminary earnings for the calendar year 2024.

 

While vaping and heated tobacco products are banned in India, BAT is increasingly focussing on these new-age categories which it believes reduces smoking-related harm. In calendar year 2024, these new-age products, or 'new categories' as BAT terms them, accounted for 13.3% of its annual revenue of 25.9 billion pounds sterling. In 2023, the new categories made up 12.3% of its revenue. Revenue from smokeless products accounted for 17.5% of the total revenue in 2024 and the company aims to have 50% of its revenue from smokeless new-age products by 2035.

 

BAT's 25.5% stake in ITC makes it the largest shareholder in the company. It also holds 15% stake in ITC Hotels, making it the largest public shareholder in the hotels entity. Its shareholding confers two board seats at ITC to BAT and also gives it certain veto rights on strategic decisions. This gives BAT indirect access to the Indian cigarettes and tobacco market as well as influence over the company.

 

"India offers an exciting proposition for all consumer businesses given the size of the market, its demographics and its socio-economic trajectory," BAT said.

 

In March 2024, BAT sold 3.5% stake in ITC, making a one-off gain of 1.4 billion pounds sterling, some of which it used to refinance part of its 37-billion-pound-sterling debt and for a share buyback. After a 700-million-pound-sterling share buyback in 2024, BAT will launch a 900-million-pound-sterling share buyback in 2025.

 

"For BAT, the exact percent holding in the Group (ITC Ltd.) is less important than the strategic relationship and retaining influence," BAT said. "No decision has been made on any potential future sale of the ITC stake. This is something our Board will continue to actively review."

 

Due to regulations, ITC has not introduced smokeless products in India. However, at an investment of INR 3.4 billion, the company has formed a subsidiary, ITC IndiVision Ltd., which is into the business of manufacturing nicotine and nicotine derivative products meant for exports. Its plant in Mysuru, Karnataka, which was commissioned in March, has the capability to produce purest nicotine derivatives conforming to pharmacopoeia standards of the US and the European Union.

 

Over the past several decades, ITC, which was focussed on cigarettes, diversified into several consumer goods products, agricultural business, technology, and hotels. However, BAT remained focussed on its global tobacco business despite several stringent regulations being introduced globally to regulate the consumption of cigarettes and tobacco.

 

Although BAT remains invested in ITC, that may not be the case with ITC Hotels. "We do not view this minority stake (15% stake) in an Indian hotels business as a long-term strategic investment.  The Board will consider all options for the stake and exercise this at the most suitable time with the aim of maximising shareholder value," BAT said.

 

On Thursday, shares of ITC closed lower by 1% at INR 402.1 on the National Stock Exchange, while those of ITC Hotels ended 0.4% higher at INR 165.24.  End

 

Edited by Ashish Shirke

 

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