And therein lies the problem. The large quasi-state ownership is acting as a value trap. It’s preventing the $25 billion enterprise from being carved up into a pure cigarette company, owned by BAT, and a supply-chain platform like China’s Pinduoduo Inc., which is nearly four times bigger in enterprise value. It’s a missed opportunity, not just for ITC’s minority shareholders, but for India.
Now that the country is giving farmers the freedom to sell their produce outside state-designated market yards, a corporate buyer like ITC that has distribution capabilities in the smallest of Indian towns (thanks to cigarettes) has a shot at building a meaningful digital, agri-business franchise. One that’s able to obtain better prices for producers.
As for the core tobacco business, London-based BAT has tried in the past to raise its stake and take over the cigarette maker, but local managers have seen it off using Indian financial institutions’ voting power. However, many investors are now wondering if empire-building by ITC’s management, in the garb of protecting national interests, has gone too far.
A cash-strapped New Delhi, which is delaying fiscal support to an economy expected to lose a 10th of its real output this year to Covid-19, also needs to rethink its stance: What additional harm will befall if BAT wins ITC’s successful cigarette division, paying a hefty control premium to acquire smokers, a vanishing breed in