The Centre has revived a plan to sell part of its indirectly held stake in ITC and the transaction could even be completed in the current financial year, according to an official source. The FMCG-to-hotel company’s share price touched a 52-week high on Monday, after markets figured out that the tax increase proposed in the recent Budget on specified cigarettes won’t dent the company’s profits much.
If the transaction happens before March, the government could easily meet its revised disinvestment target of Rs 50,000 crore for FY23, given that it has already netted Rs 31,106 crore, and a sale is also being planned of a part of its residual stake in Vedanta-controlled Hindustan Zinc.
The government holds a prized 7.86% in ITC via the Specified Undertaking of the Unit Trust of India (SUUTI). At current market prices, this stake is worth about Rs 37,390 crore, but the proposed transaction could be only a fraction of this.
“There is no reason not to sell a stake in ITC. The exact timing has to be worked out,” another official told FE.
The ITC share price, which used to languish around Rs 200 a year ago, touched Rs 388.2 on the BSE on Monday, before closing at Rs 383.3, up 0.74% from the previous close.
The transaction could be either through the offer for sale route or a block deal.
The attractive market price has given the government a good opportunity to sell a part of the holding by March. Even if it sells a stake of around 2%, it could mobilise Rs 9,500 crore at the current market prices.
It would help the government raise the bulk of the remaining Rs 9,500 crore by selling a stake in Hindustan Zinc, to meet the revised estimate for disinvestment revenue of Rs 50,000 crore. The government’s 29.54% stake in HZL is worth around Rs 42,293 crore at the current market prices.
ITC is a holding company with a diversified presence in cigarettes, hotels, paperboards & speciality papers, packaging, agribusiness, packaged foods & confectionery, branded apparel, greeting cards and other FMCG products.
Beating street estimates, ITC on Friday reported a 21.05% year-on-year jump in its standalone net profit to Rs 5,031 crore for the third quarter this fiscal as all its business verticals contributed significantly to overall profitability.
The strong profitability and the realisation that the FY24 Budget proposal of a 16% increase in the National Calamity Contingent Duty (NCCD) on specified cigarettes won’t have much impact on ITC’s business, has boosted the company’s stock price.
In February 2017, the government sold a 2% stake from SUUTI’s holding in ITC to mobilise about Rs 6,700 crore.
No further stake in ITC has been sold after 2017 because it was felt that a de-merger of the conglomerate into several distinct entities could help the government realise more value.
For quite some time, ITC has been exploring a demerger of its hotel and infotech business from the tobacco business. If the government waits for the demerger to happen first, the stake sale could materialise only in FY24.
Currently, Life Insurance Corporation holds 15.29% of ITC, while foreign direct investment is at 29.18% (Rothmans International Enterprises, Myddleton Investment Company, and Tobacco Manufacturers (India).