BAT's Disciplined Stake Sales Unlock Value in ITC: A Strategic Play for Investors

British American Tobacco (BAT) has taken another calculated step in its capital allocation strategy, announcing a 2.3% stake sale in its Indian subsidiary ITC Limited. This follows a 3.5% offloading in March 2024, both priced at an 8% discount to the market. Far from signaling doubt in ITC's prospects, these moves underscore BAT's discipline in balancing near-term leverage reduction with long-term growth. For investors, this presents a compelling opportunity to capitalize on reduced supply overhang, accretive proceeds for BAT's buyback program, and ITC's resilient cash flows.

The Case for Reduced Overhang and Institutional Ownership

BAT's stake reduction strategy has methodically addressed the "overhang" risk—that is, the potential for large-scale selling to depress ITC's share price. By offloading stakes in two tranches (3.5% in 2024 and 2.3% in 2025), BAT has converted its position from a concentrated holder (initially ~29% of ITC) to a more stable 23.1% stake post-transaction. Crucially, the shares are now distributed to institutional investors who are likely to hold them long-term, reducing future volatility.

This shift is already reflected in market dynamics. shows that while shares dipped briefly during the 2024 sale, they rebounded strongly, outperforming broader indices. Institutional ownership has risen to over 40%, signaling confidence in ITC's fundamentals.

Leveraging Proceeds for Shareholder Returns: BAT's Buyback Boost

The proceeds from these sales—approximately £1.5 billion from the 2024 sale and £1.1 billion from the 2025 tranche—are being deployed to deleverage BAT's balance sheet and expand its buyback program. By mid-2026, BAT aims to reduce leverage to its 2-2.5x target, freeing capital for growth initiatives like smokeless products.

The buyback program, now totaling £1.1 billion for 2025, directly benefits shareholders. reveals a clear downward trajectory in debt and a steady increase in buybacks, aligning with its commitment to return 60-70% of free cash flow to shareholders.

ITC's Intrinsic Value: FMCG-Tobacco Hybrid Model

ITC's valuation remains compelling. As a rare hybrid of a top-tier FMCG player (with brands like Parle-G and Sunfeast) and a dominant tobacco player, it enjoys stable cash flows from both consumer staples and a regulated nicotine market.

highlights its consistency: a current yield of 2.8% with a payout ratio of 35%, leaving ample room for growth. Meanwhile, its FMCG segment grew 12% in 2024, driven by premiumization, while tobacco margins remain robust at 55%.

The Accretive Impact on Index Weight and Demand

The reduced stake sale also positions ITC for inclusion in more equity indices. With institutional ownership rising and BAT's stake now below 25%, ITC's weighting in MSCI and Nifty indices could increase, attracting passive funds. This structural demand will further stabilize its share price.

Why Act Now?

• Value Accretion: The 8% discount reflects short-term market mechanics, not fundamentals. ITC's intrinsic value—backed by 11.87% annualized returns over five years—suggests a rebound once overhang fears subside.
• BAT's Long-Term Commitment: Retaining 23.1% of ITC, BAT remains a strategic partner, ensuring alignment on growth initiatives like ITC's green manufacturing and digital platforms.
• Dividend Safety: ITC's dividend cover and debt-free balance sheet (net debt/EBITDA of 0.5x) insulate payouts from macro shocks.

Final Call: A Dual Win for Investors

BAT's disciplined capital allocation creates a win-win: reduced leverage for the parent and a clearer path for ITC to shine. For investors, the combination of accretive proceeds, reduced overhang, and ITC's hybrid model make this a rare entry point. Act swiftly—these stakes won't overhang forever.

In a world of volatility, BAT's strategic moves and ITC's resilience offer a stable, high-yield gateway to India's growth story. The time to invest is now.