British American Tobacco Plans to Exit ITC Hotels Stake by 2026

British American Tobacco (BAT), a long-time shareholder in ITC Limited, has announced its intention to exit its stake in ITC Hotels by 2026. The company, which currently holds a 15.3% stake in the hospitality arm of ITC, has made it clear that it does not seek to be a long-term shareholder in the Indian hotel industry. The current valuation of BAT’s holding in ITC Hotels stands at ₹5,405 crore ($623 million).

During its FY24 earnings call, BAT’s Chief Executive Officer, Tadeu Marroco, reiterated the company’s position, stating, “We have no interest in becoming a long-term shareholder of a hotel chain in India.” BAT aims to determine the most opportune time for the sale to maximise value for its shareholders.

A Gradual Reduction in ITC Holdings

BAT has been steadily reducing its stake in ITC Ltd over time. In 2023, the company sold 3.6% of its stake in ITC Ltd for £1.57 billion. The proceeds were utilised to restart its share buyback programme, which was introduced in response to shareholder preferences.

Following this transaction and ITC’s extended Employee Stock Ownership Plan (ESOP), BAT’s holding in ITC Ltd declined to 25.4%, with the remaining stake currently valued at approximately $15 billion.

Demerger of ITC Hotels and BAT’s Stake

BAT’s stake in ITC Hotels emerged as a result of ITC Ltd’s demerger process. Under this corporate restructuring:

• ITC Hotels issued equity shares directly to ITC Ltd’s shareholders.
• ITC Ltd retained a 40% stake in its hotel subsidiary.
• The remaining shares were distributed among equity holders in proportion to their existing stakes.

This restructuring left BAT with a 15.3% stake in ITC Hotels, while Life Insurance Corporation of India (LIC), the country’s largest insurer, holds 9.2% of the hospitality entity.

Utilisation of Sale Proceeds

BAT has outlined its plans for the funds generated from the sale of its ITC Hotels stake. According to Marroco, the proceeds will be used to reach the company’s leverage corridor of 2-2.5 by 2026. This move is in line with BAT’s broader financial strategy to optimise capital allocation.

Market Reaction to BAT’s Announcement

Following BAT’s disclosure of its divestment plans, ITC Hotels’ share price saw a decline, trading 2.75% lower as of 10:39 AM on 14 February 2025.

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