British American Tobacco (BAT), the largest shareholder in ITC, to offload as much as 3.5% stake for ₹16,775 crore. The London-based Lucky Strike cigarettes maker uses the net proceeds for repurchasing its own shares, which are available at huge discounts with respect to India’s holding.
While the shares of ITC are trading at a valuation of 23 times its one-year forward earnings, the stock of BAT commands a valuation, which is less than a third of ITC’s valuation.
The 12-month forward price-to-earnings (PE) of BAT stands at 6.4x, according to Bloomberg data. In fact, the stock of BAT is trading at a massive discount of 72% to ITC and, it is the cheapest among global tobacco players.
"BAT intends to use the net proceeds of the Block Trade to buy back BAT shares over a period ending December 2025, starting with £700 million in 2024," BAT said in a statement.
Reacting to the development, BAT shares surged 3.5% on the London Stock Exchange. Before the announcement, the stock of ITC closed 1.3% lower at ₹404.45 on the NSE.
Even after the proposed sale, BAT will continue to remain a significant shareholder in ITC, with a holding of 25.5%. At the current market price, BAT’s holding will be valued at $ 15.5 billion, which is nearly a fourth of its market valuation. BAT commands a market capitalisation of $68 billion.
BAT's initial investment in ITC dates back to the early 1900s and the two companies have a longstanding, mutually beneficial relationship. It also has two nominee directors on ITC's board and used to own 32% in Mach 2009, which came down to the current level due to ESOPs issued by ITC.
Interestingly, in December last year, ITC had even surpassed BAT’s market capitalisation to become the third-largest tobacco company in the world. However, since then ITC has lost more than 15% of its value.
The P/E ratio is a valuation metric comparing the price of a company’s stock to its earnings. The ratio is calculated by dividing the company’s share price by its earnings per share (EPS). The higher the ratio, the more expensive a stock is relative to its earnings, or vice versa.
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