ITC, one of India’s prominent cigarette manufacturers experience surge in its shares

ITC, a leading cigarette manufacturer in India, witnessed a notable surge in its shares, climbing more than 8 percent on Wednesday.

This increase followed the sale of approximately 3.5 percent of its total float shares at a premium, shortly after its major shareholder, British American Tobacco (BAT), announced its intentions to reduce its stake.

The block trade, involving about 4.4 million ITC shares sold at $5.25 each, amounted to roughly $23 million and was executed at a 7.6 percent premium to the stock’s closing price on the previous day, as per data from LSEG.

The rise in ITC’s shares prompted a significant response in the market, with the company’s stocks initially surging by as much as 8.3 percent before moderating to about a 6 percent increase, trading at $5.19.

This rally marked the most significant intraday surge in ITC’s shares since mid-September 2021, making it the top gainer on the Nifty 50 index, despite the broader index experiencing a slight decline of 0.2 percent.

British American Tobacco, known for brands like Dunhill and Lucky Strike, had previously announced its plans to reduce its stake in ITC, which stood at approximately 29 percent.

In its announcement on Monday, BAT mentioned its consideration of selling a “small part” of its holdings in ITC, the maker of Goldflake cigarettes.

Following BAT’s disclosure, ITC’s shares saw a marginal decline of 1.2 percent the following day.

However, the recent surge has reversed the stock’s trajectory, with gains of nearly 4 percent since BAT’s initial plan to divest shares was revealed.

While the recent block deal has sparked speculation regarding BAT’s involvement, clarity on the matter remains elusive.

Analysts suggest that BAT may aim to maintain a stake of at least 25 percent 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 represent the primary revenue source for ITC, contributing to over 40 percent 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.