- Jefferies downgrades ITC stock from “buy” to “hold” due to BAT stake sale.
- ITC’s target price revised down to Rs 430/share from Rs 520/share.
- BAT confirms intent to reduce stake in ITC, citing capital reallocation.
- Potential supply overhang as BAT plans to sell 4% stake valued at $2.5 billion.
- ITC’s recent performance affected by BAT’s decision and slowdown in volume growth.
Jefferies downgrades ITC amid BAT stake sale :
Jefferies, a renowned international brokerage firm, lowered ITC shares from “buy” to “hold” on news that British American Tobacco (BAT) intends to sell its investment in the company. The downgrade comes as Jefferies expects ITC to trade range-bound for the foreseeable future, driven by the upcoming BAT stake sale and a slowing in volume growth. Additionally, Jefferies has reduced ITC’s target price to Rs 430 per share from Rs 520.
Market Response and Trading Outlook :
As of 10:16 a.m., ITC shares were trading at Rs 420.05 on the NSE, up 1.3 percent. The recovery comes after a 4% drop in the previous trading session, driven by BAT’s announcement of its intention to cut its investment in ITC.
Factors Influencing ITC Performance :
ITC has demonstrated excellent performance in recent years, with cigarette volumes recovering strongly following Covid-19. This recovery led to a re-rating of the company’s shares. However, Jefferies predicts that the looming BAT stake sale, combined with upcoming taxing events such as general elections and the new government’s entire budget over the next 12 months, as well as a slowing in volume growth, will impair the outlook for ITC shares.
BAT Stake Sale Confirmation :
BAT has restated its aim to reduce its investment in ITC, noting the chance to free up and reallocate capital. With a present holding of 29.03 percent worth at Rs 1.5 lakh crore, BAT expressed confidence that a 25 percent investment in ITC would be sufficient to preserve strategic influence.
BAT CEO Tadeu Marroco emphasised that “we do not need to have more than a 25% stake in ITC to have strategic influence, including veto rights.” Today we have more than that.”
Potential Impacts of Stake Sale :
Jefferies noted the potential consequences of BAT’s proposed share sale, estimating a $2.5 billion value for a four-percentage-point disposal, which might lead to a market supply overhang. BAT itself is facing issues from dropping cigarette volumes, notably in major regions such as the United States, where it recently announced a $32 billion write-down. Furthermore, BAT’s enormous net debt of $40 billion, which is almost three times EBITDA and nearly 60 percent of its market capitalization, complicates its financial situation.
Given the uncertainty surrounding the BAT stake sale and the broader market factors influencing the tobacco industry, Jefferies expects ITC’s performance would be restrained in the short term.
In conclusion :
while ITC has demonstrated resilience and growth in recent years, the current landscape presents hurdles that may limit its trajectory in the near future. Investors should keep a careful eye on developments surrounding the BAT stake sale and broader market trends in order to assess ITC’s performance and prospective investment possibilities.