August 12, 2025

British American Tobacco (BAT) is preparing a big business move but first needs a green signal from the Reserve Bank of India (RBI). BAT holds 15.29% in ITC Hotels, a stake dating way back to the early 1900s. This makes BAT ITC's largest public shareholder, after ITC's promoters. CEO Tadeu Marroco told analysts, "Sometimes things take longer for us to be able to unlock those shares, get the right approvals in the right forums," referring to RBI's permission to sell these shares. Why the wait? This stake is a foreign direct investment in India’s hotel sector, and the RBI approval is crucial because BAT will be selling shares and bringing money out of India. Analysts think RBI's nod might also relate to ITC's tobacco business, as foreign direct investment rules are strict in that sector. The hotel arm of ITC was separated in January with ITC shareholders owning 60%, and ITC itself holding the rest. ITC Hotels is huge, with over 200 hotels including 143 running right now and 58 more being built. BAT’s planned sale here is strategic. Marroco said clearly, "BAT wants to divest the stake as it strategically doesn't want to be in the hotel business." What’s in it for BAT? Big money and less debt! The sale will help BAT push its adjusted net debt/EBITDA ratio down to 2-2.5 times by the end of 2026. Marroco said, "We intend to use the proceeds of the hotel to deleverage further the company." BAT has already been trimming its ITC shares in two big block deals last year and this year, cutting its holding from 29% to about 22.93%. This recent action, combined with a strong cash flow, gives BAT great capital flexibility. The May stake sale alone brought in ₹1.1 billion, enabling BAT to increase its share buyback for 2025. A bonus for BAT from the ITC Hotels demerger? BAT’s share of the fair value gain of the hotel business exceeded ₹333 million after tax, adding a nice financial boost. In short, BAT is unlocking its treasure chest of old-era shares, aiming to clear debt and focus on core business. The game is on, but the RBI’s wait-and-watch will decide the next big step!

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Tags: British american tobacco, Itc hotels, Rbi approval, Stake sale, Debt reduction, Foreign direct investment,