ITC share price jumps over 8% as BAT sells 3.5% stake in block deal, posts biggest single-day gain since September 2021

ITC share price jumped over 8% in early trade on Wednesday amid reports of a block deal in the stock with British American Tobacco Plc (BAT) likely to be the seller of ITC shares.

ITC shares rallied as much as 8.59% to ₹439.00 apiece on the BSE.

Around 43.7 crore ITC shares, amounting to 3.5% of the total equity of the company, changed hands in a block deal that took place in the pre-market block window. The shares were sold at an average price of ₹400.4 apiece, taking the total transaction value to ₹17,491 crore, reports said.

Earlier, BAT said it would sell a 3.5% stake in the Indian cigarettes-to-hotels conglomerate, ITC Ltd, in block deals.

Mint had reported that BAT, which holds over 29% of the cigarettes-to-hotels conglomerate, will sell the shares at ₹384–400.25 each, implying a 4–5% discount to ITC’s Tuesday closing price of ₹401.90 on the NSE. 

Read here: BAT to sell 3.5% in ITC on Wednesday, may raise up to ₹17,480 crore

According to a term sheet seen by Mint, the lock-in period for the deal is 180 days.

After the sale, BAT’s shareholding in ITC will be 25.5%. On 9 February, the company told investors that its shareholding would not fall below 25%.

“With this transaction, BAT can accelerate the start of a sustainable buyback, while enabling us to continue to deleverage towards a new target range of 2–2.5X adjusted net debt/adjusted EBITDA,” said Tadeu Marroco, chief executive of BAT. 

He added that BAT looks forward to remaining important shareholders in ITC as it continues its journey of growth.

ITC shares have corrected nearly 20% from its peak and are down more than 13% year-to-date (YTD) amidst news of the stake sale by BAT.

Analysts believe the drop in ITC shares offers a buying opportunity with attractive valuations.

“A near term top in ITC shares seems to be in place around ₹500-odd levels which happened just before the announcement of the demerger of the hotel business into a new entity in August 2023. However, we remain constructive on the company from a medium to long term perspective owing to its strong brand recall and enormous runway for its FMCG business ahead,” said Manish Chowdhury, Head of Research, StoxBox.

With inflation expected to moderate further ahead, especially on the rural side, he expects volumes in the overall business to come back as we move forward. 

“At the current valuation, we believe that most of the negatives are already priced in and investors could start considering adding the stock to their portfolio at every dip,” Chowdhury said.

Brokerage firm CLSA believes this correction offers an attractive multiple in a volatile market and has upgraded ITC stock to ‘Buy’ with a target price of ₹486 per share, according to CNBC-TV18.

On the technical front, ITC stock seems to have bottomed out near the ₹398 zone after a decent correction from its peak.

“Currently, after a short consolidation, it has improved the bias with a positive candle. The RSI is well-placed and has shown a trend reversal with the potential to rise further in the coming days. With the chart, looking good, we suggest buying the stock for an upside target of ₹465 while keeping the stop loss of ₹396,” said Vaishali Parekh, Vice President - Technical Research, Prabhudas Lilladher.

At 9:20 am, ITC shares were trading 6.15% higher at ₹429.10 apiece on the BSE.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.