The Centre has decided not to disinvest its prized holding in ITC, India’s largest cigarette-to-hotel conglomerate, for the next few years for “strategic reasons,” sources told FE. The stake is held through the Specified Undertaking of the Unit Trust of India (SUUTI).
The 7.87% SUUTI equity in ITC at the current market price is worth Rs 42,000 crore. The value of this stake has increased by nearly a quarter in the past eleven months, and more than doubled in less than two years.
“The government is holding ITC strategically. At a certain stage in the long run, it will exit in small tranches,” an official said. “But, not this year, not even in the immediate future,” the official added.
The Centre is getting around Rs 1,000 crore dividend annually from ITC for its 7.87% stake, which is higher than what it could get from the proposed privatisation of a few small state-run companies.
“The stock is doing well because of the demerger. The Centre’s wealth is increasing,” the official said, adding that the potential is also good going forward.
Even though a small stake sale in ITC would fetch the Centre a decent amount of revenue to meet its disinvestment revenue target of Rs 51,000 crore for FY24, the government having no such plan indicates it’s comfortable with the fiscal position due to higher-than-expected growth in tax and non-tax revenues.
The Centre has sold off the bulk of its shares held via SUUTI in Axis Bank and L&T in recent years.
On August 14, the board of ITC approved the demerger of its hotel business, with an indicative timeline of listing the new entity in about 15 months’ time.
In February 2017, the government sold a 2% stake from SUUTI’s holding in ITC to mobilise about Rs 6,700 crore. Thereafter, it hasn’t reduced much stake in the company.
No stake sale in ITC after 2017 could be due to the likely de-merger of the conglomerate into several distinct entities that could help the government realise more value for its stake.
With a diversified presence in FMCG, hotels, packaging, paperboards & specialty papers and agri-business, investors have been demanding that the FMCG major should demerge business segments. Its tobacco business restricts investments from large investors due to ESG (Environmental, Social, and Governance) concerns.
ITC does not have a promoter and its shares are held by a wide gamut of public shareholders. The company is professionally managed by its Board. Currently, state-run insurers including Life Insurance Corporation hold 20.32% of ITC while foreign direct investment is at 29.04% (Rothmans International Enterprises Limited, Myddleton Investment Company Limited and Tobacco Manufacturers (India) Limited).
ITC’s share price closed at 428.4 on Tuesday, down 0.46% from the previous closing price on the BSE.
ITC will hold a 40% stake in the demerged hotel entity, and existing ITC shareholders including the government will hold the remaining 60%. ITC currently operates over 120 hotels and resorts across more than 70 locations in India.
Each segment of the company in FY23 reported its highest revenues in the last five years, with Cigarettes and FMCG growing by 19.5% each and hotels by 99.5% on-year.
ITC has reported a 17.6% on-year rise in its net profit in Q1FY24 and 10% in Q2FY24.
