Government may divest residual stake in ITC Ltd

Should the central government hold a stake in a cigarette and FMCG company? The central government things that a company like ITC is not core to its activity and hence can be divested. The divestment of ITC could be completed in FY23 itself. But, how did the government get to owning ITC. This was part of the government sponsored bailout of UTI’s US-64 back in 2003 when UTI was on the brink of a crisis. The part of the portfolio vested with the government (SUUTI) included stocks like ITC, L&T and Axis Bank. 

Now the government wants to sell out of ITC and the transaction could be completed in FY23 itself. The decision makes a lot of sense with the stock of ITC close to its 52-week high. The stock has remained buoyant despite the Union Budget 2023-24 hiking the tax on cigarettes. The ITC stake would be a virtual jackpot for the government. Its 7.86% stake in ITC is worth nearly Rs40,000 crore at current prices.

That would be a big boost to the disinvestment story for FY23. Out of the divestment target of Rs50,000 crore (revised) for FY23, government has already achieved Rs31,106 crore. Even selling half the stake in ITC would be enough to meet the current year target and it can carry forward the Hindustan Zinc sale to next fiscal year. 

The stock of ITC is up nearly 90% in the last one year and offers a salivating exit point for the government. Government may plan for a 2% stake worth around Rs9,300 crore in this fiscal and may opt for the offer for sale route or a block deal. For Q3FY23, ITC Ltd had reported 21.05% higher net profits at Rs5,031 crore, with generous contribution from all the verticals.