British American Tobacco Plc has described its investment in ITC Ltd as ‘strategic’, adding that it would continue to hold on to a ‘relevant’ stake in the Indian company as a ‘new category’ (smokeless products) could be a ‘big factor’ in India in future.

In the post results conference call with financial analysts, BAT chief executive Tadeu Marroco said that the London-based company would continue to have an influence on the ITC board with two BAT nominees present.

“The ITC stake is still for us a strategic investment. It’s not a financial investment,” the chief executive said when quizzed on how investors should read BAT’s engagement with ITC, pointing toward the ‘multi-layer’ relation between the two companies and the opportunities that the Indian market provides to the global tobacco giant.

This is the first instance when the BAT management met investors after offloading a 2.5 per cent stake in ITC Ltd at an average price of ₹413 per share, collecting a little over ₹12,100 crore.

BAT, which holds shares in ITC through three subsidiaries, now has a 22.93 per cent stake, down from 25.45 per cent.

In 2024, BAT had sold 3.5 per cent stake, pulling down its stake from 29.03 per cent.

Analysts in India said the overhang of further stake sales by the maker of Dunhill and Lucky Strike may create pressure on the ITC stock price. The stock closed on Tuesday at ₹416.8 on the BSE, down ₹2.55 or 0.16 per cent.

With the latest round of stake sale, BAT’s holding has slipped below 25 per cent, which was essential to keep the veto power on special resolutions that require at least 75 per cent of votes polled in favour to pass.

New category

Explaining why BAT considers the ITC stake, valued to be around $15 billion, as strategic, Marroco pointed towards India, with the “size of the market, the demographics, the potential GDP per capita growth that we are seeing”.

Praising the Sanjiv Puri-led ITC management, Marroco observed, “ITC is a very well-oiled and run company and leader in distribution, leader in cigarettes and we have a multi-layer relationship with ITC.”

He also informed that BAT and ITC have some inter-party relations in leaf (tobacco) and IT. However, it is the opportunity that India holds for BAT’s new categories (smokeless products) other than cigarettes (combustibles), such as vapour products, tobacco heating products and nicotine pouches that make ITC, with its deep distribution reach, a strategic bet. As of now these items are prohibited in India but BAT hopes regulations may change in the future.

“We have expectations that this new category can be a big factor in the India market in the future. And we want to preserve, as a consequence, a relevant stake in ITC,” he said.

BAT’s strategic vision underlines a ‘smokeless future’ where the shares of combustibles (traditional cigarettes) are gradually overtaken by smokeless products. It aims to earn at least 50 per cent revenue from smokeless products by 2035.

However, for the time being it’s the dual exigencies of deleverage and buyback that prompted the stake sale. “This is basically a decision to allow us to have a financial flexibility to beef up bit more the buyback and at the same time ensure that we get to the leverage corridor that we are aiming for between 2 to 2.5 by the end of the next year,” Marroco said.