Carrying a debt of $53.19 billion and after recently marking down the value of some of its US cigarette brands by $31 billion, London-headquartered British American Tobacco (BAT) is looking to sell part of its stake in its Indian subsidiary, ITC Ltd, to urgently raise cash. This move is a significant shift from the BAT’s strategy three decades ago when it was looking to strengthen its grip on the Indian company by hiking its stake to 51% from 31% it held then.
Back in 1994, ITC’s headquarters in Kolkata was the centre of a fierce battle for control between BAT and ITC, with the latter successfully resisting BAT’s attempts to increase its stake. Following a tumultuous period in 1996, which included allegations of excise evasion and foreign exchange regulation violations, ITC emerged stronger, having cleared all charges and restructured its business to focus on areas with strategic importance, particularly post-liberalization market opportunities. This strategy paid off, as evidenced by ITC’s impressive consolidated net profit of ₹5,400 crore for the quarter ended December 2023, highlighting its successful journey over the last 25 years.
In contrast, BAT faced a challenging 2023 with losses amounting to $18 billion, necessitating cash injections from its Indian operations, through dividends or possibly selling its equity in ITC. The latter’s share price has risen over 60% in the last four years, marking its emergence as a fast-moving consumer goods (FMCG) powerhouse, while BAT’s market value has declined nearly 30% in the same period.
The late Yogi Deveshwar, ITC’s former leader who pushed back the charge of the British parent, would have been pleased with this turnaround. Under his leadership, and then more definitely under his successor Sanjeev Puri, ITC diversified its revenue streams beyond tobacco to include sectors like foods and hotels. Over the last 15-20 years, the company has chosen to make small, strategic acquisitions of non-tobacco brands at prices that were easy on its pocket. Thus in 2017 it acquired Charmis, expanding its skincare portfolio, while in 2018 it bought floor cleaner Nimyle marking its entry in the segment. Similarly it bought a 39% stake in health snack brand Yoga Bar last year for ₹175 crore.
BAT, on the other hand, invested its surpluses from the cigarette business, which was booming through the 90s, into more of the same. In 2008, it entered the Turkish tobacco market by acquiring Tekel, the state-owned tobacco monopoly company for $1.7 billion. In the same year it bought Scandinavian Tobacco Group, an acquisition that cemented its position as the world’s leading manufacturer of cigarettes and smokeless tobacco.
Similar acquisitions followed in countries like Indonesia, culminating in the 2017 acquisition of Reynolds American Inc for $49.4 billion. While that move gave BAT ownership of brands like Newport, Camel, and Kool in the US and turned it into the world’s largest listed tobacco company, it also sowed the seeds of its current crisis as the US market extended its long decline of cigarette sales.
ITC’s approach, though riskier due to the initially low profitability of new ventures, utilized its extensive distribution network to diversify its product range. This strategy prepared ITC for the decline in tobacco consumption, in contrast to BAT, which has struggled to find successful alternatives to traditional tobacco products.
ITC’s diversification has reduced the cigarette business to about 35% of its revenues, building a robust strategy against future risks. BAT, in contrast, has focused on its core tobacco business, facing an uncertain future as the industry continues to evolve.
