ITC, one of India’s prominent cigarette manufacturers, experienced a surge in its shares, rising over 8 per cent on Wednesday.
This jump followed the sale of approximately 3.5 per cent of its total float shares at a premium, shortly after its major shareholder, British American Tobacco (BAT), announced intentions to reduce its stake.
The block trade, which saw around 4.4 million ITC shares sold at $5.25 each, amounted to approximately $23 million and was executed at a 7.6 per cent premium to the stock’s closing price on the preceding day, according to data from LSEG.
The uptick in ITC’s shares prompted a noteworthy response in the market, with the company’s stocks initially surging by as much as 8.3 per cent before moderating to about a 6 per cent increase, trading at $5.19.
This rally positioned ITC’s shares for their most significant intraday surge since mid-September 2021, making them the top gainer on the Nifty 50 index, despite the broader index experiencing a slight decline of 0.2 per cent.
British American Tobacco, renowned for brands such as Dunhill and Lucky Strike, had previously disclosed its plans of reducing its stake in ITC, standing at approximately 29 per cent.
In its announcement on Monday, BAT indicated its consideration of selling a “small part” of its holdings in ITC, the manufacturer of Goldflake cigarettes.
Following BAT’s disclosure, ITC’s shares experienced a marginal decline of 1.2 per cent the subsequent day.
Regardless of this, the recent surge has reversed the stock’s trajectory, with gains of nearly 4 per cent since BAT’s initial plan to divest shares was revealed.
While the recent block deal spurred speculation regarding BAT’s involvement, clarity on the matter remains elusive.
Analysts suggest that BAT may seek to maintain a stake of at least 25 per cent in ITC to retain its board seats and influence over the company’s strategic decisions, as outlined by brokerage firm Jefferies in a note on Monday.
Cigarettes constitute the primary revenue source for ITC, contributing to over 40 per cent of its total revenue.
In line with its efforts to streamline its operations, the company has undertaken initiatives to consolidate its business, including plans to spin off its hotel business.
(With inputs from Reuters)
