Information on the Target

ITC Limited, a prominent player in India’s Fast-Moving Consumer Goods (FMCG) sector, has a rich history and has consistently delivered substantial value to its shareholders since its inception. Founded in the early 1900s, ITC has evolved into one of India’s leading enterprises, with a diverse portfolio spanning various sectors including packaged foods, personal care, and health supplements. British American Tobacco p.l.c. (BAT) has maintained a long-standing investment relationship with ITC, and as of this announcement, BAT holds approximately 23.1% of ITC's ordinary share capital.

Through its operations, ITC has developed a robust brand reputation and established itself as a key player in the Indian market. The ongoing partnership with BAT continues to enhance its competitive positioning, enabling both companies to leverage market opportunities and drive growth in India’s expanding economy.

Industry Overview in India

The FMCG sector in India is among the largest and fastest-growing segments of the economy, driven by factors such as urbanization, rising disposable incomes, and changing consumer preferences. These evolving dynamics have positioned companies like ITC to thrive, as they cater to a diverse and increasingly affluent consumer base.

As of 2023, the Indian FMCG market is projected to grow at a steady rate, with significant investments pouring into innovation and supply chain enhancements. Companies are increasingly focusing on digital transformation and sustainable practices to meet the demands of environmentally-conscious consumers, making the market more competitive.

Moreover, the COVID-19 pandemic has led to a shift in consumer behavior, emphasizing the importance of health and wellness products. ITC, with its extensive portfolio that includes a variety of health-oriented offerings, is well-positioned to capitalize on this trend and meet the evolving needs of Indian consumers.

The regulatory environment in India has also seen improvements, with the government implementing policies that support ease of doing business and attract foreign investments. This favorable climate further enhances the growth prospects for FMCG companies in the region.

The Rationale Behind the Deal

The decision by BAT to divest approximately 2.3% of its stake in ITC through an accelerated bookbuild process is driven by a strategic focus on improving financial flexibility. By selling these shares, BAT aims to reinforce its commitment to shareholders while simultaneously funding further investments in transformative initiatives.

Proceeds from the transaction are intended to facilitate a reduction in adjusted net debt levels by striving for a target leverage corridor of 2-2.5x adjusted net debt to adjusted EBITDA by the end of 2026. Additionally, this move will bolster BAT’s share buyback program, with an anticipated increase of £200 million for the total buyback to reach £1.1 billion in 2025.

Information About the Investor

British American Tobacco p.l.c. is a leading multinational tobacco and consumer goods company, recognized for its extensive portfolio of brands and global reach. Operating in over 180 markets, BAT has a significant presence in both developed and emerging economies, with a strong focus on transformation towards sustainable practices and diversification.

Under the leadership of Chief Executive Tadeu Marroco, BAT has embraced innovation and has been actively realigning its business strategies to adapt to shifting consumer trends. The company is determined to achieve its commitments to shareholders while capitalizing on growth opportunities in high-potential markets such as India.

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From an expert perspective, this transaction could be regarded as a sound investment decision for BAT, aligning with its strategic objectives of achieving financial flexibility and sustainable shareholder returns. By maintaining a significant stake in ITC even after the sale, BAT continues to benefit from the growth potential of one of India’s leading businesses in a booming market.

Additionally, the commitment to use the proceeds to reduce debt enhances BAT's financial stability, which is vital in today’s dynamic economic environment. This approach could lead to improved credit ratings and lower financing costs in the long term.

Moreover, the proactive increase in the share buyback initiative signals confidence in the company’s future performance and reflects a dedication to returning value to its shareholders. Engaging in such financial maneuvers positions BAT favorably as it navigates potential market volatility.

Ultimately, this deal illustrates BAT's ongoing commitment to strategic investments, ensuring that it can adapt and grow in a significant market while maintaining a collaborative relationship with ITC, which remains a core asset in its portfolio.

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