Analysts are bullish on ITC shares after BAT sold 3.5% of its stake in the company. Photo credit: Brandysolomon73, CC 4.0.
British American Tobacco Plc., via its affiliate Tobacco Manufacturers (India) Ltd, sold 436.9 million shares in Indian tobacco giant ITC Limited for INR166.9 billion (US$2 billion). Following this transaction, BAT’s stake in ITC decreased to 25.5% from 29% and ITC share prices surged by over 8% on March 13th.
This was India’s third-largest block deal ever. Among the buyers were the Singapore government, which bought 92million shares and ICICI Prudential Mutual Fund, which bought 124 million shares through multiple blocks. Other fund houses that bought more than 10 million shares include BofA Securities Europe, (20.4 million), Capital Income Builder (17.6 million), Citigroup Global Markets Mauritius (17.6 million), Copthall Mauritius Investment ( 13.6 million), Ghisallo Master Fund (11.5 million), Monetary Authority of Singapore (12 million), Morgan Stanley Asia Singapore (15.3 million), and Societe Generale (18.3 million).
BAT intends to use the net proceeds to buy back BAT shares over a period ending December 2025, starting with £700 million (US$895.4 million) in 2024, and will continue to use operating cashflow toward its transformation, progressive dividends, and reduce debt.
Analysts are bullish on ITC shares following BAT’s sale, upgrading or maintaining ITC’s rating to “buy”. Morgan Stanley analysts expect moderate cigarette taxes, non-cigarette businesses growth, and reasonable valuation, setting a target price of INR491 (US$5.92). They said in a note, “"We estimate that there is about an 80%-plus (or "highly likely") probability for the scenario. Estimated probabilities are illustrative and assigned subjectively based on our assessment of the likelihood of the scenario.” HSBC and Goldman Sachs both set target prices at INR480 (US$5.79).
Out of the 37 brokerages tracking ITC, 34 have given it a “buy” rating. The average target price for ITC stands at INR503 (US$6.07), indicating a potential upside of about 19%.