The Centre government has decided not to sell its significant shares in ITC. ITC is India’s top firm with ventures ranging from cigarettes to hotels. As per reports in the media, the government’s shares are protected by the Specified Undertaking of the Unit Trust of India (SUUTI).
Currently, SUUTI holds a 7.87 per cent equity in ITC, which is valued at Rs 42,000 crore at the current market price. Over the past eleven months, the value of this stake has increased by nearly 25 per cent, and in less than two years, it has more than doubled.
This remarkable performance can be attributed to ITC‘s impressive financial results and the recent demerger of its hotel business. Reports say that the government is strategically holding onto its ITC stake and may consider gradual divestment in the long run. However, there are no plans for this in the immediate future.
The Indian government receives an annual dividend of approximately Rs 1,000 crore from ITC for its 7.87 per cent stake, which surpasses the potential revenue from the proposed privatisation of some small state-run companies.
As per media reports, it has been pointed out that the government’s fiscal position is comfortable, thanks to better-than-expected growth in tax and non-tax revenues, despite the fact that a partial sale of ITC shares could contribute significantly to the disinvestment revenue target of Rs 51,000 crore for FY24.
In recent years, the government has sold off most of its SUUTI-held shares in Axis Bank and L&T.
On 14 August, the ITC board approved the demerger of its hotel business, with plans to list the new entity in approximately 15 months.
In February 2017, the government sold a 2 per cent stake from SUUTI’s ITC holdings to raise about Rs 6,700 crore. Subsequently, there was no significant reduction in the government’s stake in the company.
The absence of a stake sale in ITC since 2017 may be related to the potential demerger of the conglomerate into distinct entities, which could provide the government with a better return on its investment.
ITC‘s diverse business presence includes FMCG, hotels, packaging, paperboards, specialty papers, and agri-business. Investors have been urging the FMCG major to demerge its business segments, particularly because the tobacco business has raised concerns related to Environmental, Social, and Governance (ESG) issues, limiting investments from large investors.
Following the demerger of its hotel business, ITC will retain a 40 per cent stake in the new entity, with existing ITC shareholders, including the government, holding the remaining 60 per cent. ITC currently operates over 120 hotels and resorts across more than 70 locations in India.
