ITC stock price today: ITC shares surged 8.6% on the BSE to hit a daily high of Rs 439 after British American Tobacco (BAT) PLC announced on Wednesday that it plans to sell around 3.5% stake in ITC to institutional investors through a block deal. Despite the downsizing, ITC's largest shareholder, BAT, will retain approximately 25.5% ownership after the transaction, maintaining its strategic position in the country's leading cigarette manufacturer. BAT must wait 180 days before reducing its stake further.
The proposed sale will be carried out within a price range of Rs 384-400.25 per share, implying a discount of up to 5% at the lower end of the range based on ITC's closing price on BSE on Tuesday.
Early investments in ITC date back to the early 1900s. BAT said it continues to fully support ITC's management, performance and strategy.
“I am confident that ITC will continue to create greater value for shareholders under the leadership of its current management team. We look forward to remaining a significant shareholder of ITC as it continues its growth journey. “This transaction allows BAT to accelerate the start of sustainable share buybacks while continuing deleveraging towards a new target range of 2-2.5x Adjusted Net Debt/Adjusted EBITDA.” BAT CEO Tadeu Marroco said in a statement.
Sources at CNBC Awaaz said Capital International or GIC Singapore may buy ITC's stake. In addition, domestic funds such as ICICI Prudential MF and Aditya Birla Mutual Fund also showed great interest in this block deal. Sources said other organ-only and specific insurance funds have also shown some interest.
On March 12, ITC shares closed 1.83 per cent lower at Rs 401.9 on the NSE following reports that BAT would start selling its stake during the week.
The main challenge BAT faces as it sells its stake in ITC is navigating regulatory hurdles imposed by the Reserve Bank of India on foreign ownership of tobacco companies, which limit who can buy the shares.
BAT CEO Tadeu Marroco said in December that the complexity of the ITC share sale was enormous.
“Any action on our stake requires certain RBI approvals, which adds a significant level of bureaucracy,” he said. As a result, “the scope of buyers is limited” for ITC shares, he said.
What do brokerages say?
“We believe ITC’s share price may come under pressure in the near term due to a large share offering following British American Tobacco (BAT) expected to sell its 3.5% stake. The near-term high appears to be around Rs. This level of over 500 occurred just before the announcement that the hotel business would be demerged into a new entity in August 2023,” said Manish Chowdhury, head of research at StoxBox.
Chowdhury also expressed a positive outlook, saying he maintains a favorable view on the company in the medium to long term due to its strong brand awareness and significant growth potential in the FMCG segment. As inflation is expected to ease further, especially in rural areas, we expect overall business volume to recover in the future. Considering current valuations, we believe most of the downside has already been accounted for and investors may consider adding the stock to their portfolios during market downturns.
Goldman Sachs maintained a buy rating and target price of ₹480 on ITC on the back of improving FMCG profitability and steady recovery in tobacco revenue.
“We believe ITC’s tobacco business has the potential to deliver healthy revenue growth over FY23-25E, supported by a stable tax regime of 5-7% annual tobacco tax increases. In the FMCG business, we see strong growth potential for ITC brands in packaged flour, noodles, gourmet biscuits, spices and salted snacks. We expect ITC's FMCG business to grow at a CAGR of 12% over FY22-27E. ITC’s FMCG EBITDA margin is expected to increase to ~12% by FY27E from ~9% in FY22,” Goldman said.
CLSA upgraded ITC to buy on better performance but cut the target price from Rs 486 to Rs 468, saying premiumization is underway although cigarette sales are likely to decline.
Vaishali Parekh, Vice President of Technology Research at Prabhudas Lilladher, said: “ITC LTD is our technical pick with a Buy recommendation at 417 on March 11. A block deal occurred today around the 385 level, with a stop loss at the 396 level, leading to an exit recommendation for now. Technically, on a long-term basis, the stock is showing strong support at the 360-380 level and our long-term targets are: Set it to 465-480.”
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