ITC becomes world's 3rd most valuable tobacco company after London-based BAT sinks

In a significant market shift, ITC Ltd has emerged as the third most valuable tobacco company globally, overtaking British American Tobacco (BAT). The transition follows a sell-off in BAT shares, underscoring ITC’s dynamic business diversification.

Historical Journey

1910: ITC originated as the Imperial Tobacco Co of India Ltd, a subsidiary of the British parent, in a modest office on Radha Bazar Lane in central Calcutta.
1926: The company acquired a plot on Chowringhee, relocating its office to the present-day Virginia House.

Evolution of ITC

As ownership gradually shifted to Indian hands, the company underwent name changes, becoming India Tobacco Company Limited in 1970 and later I.T.C. Limited in 1974.

BAT’s Involvement

BAT Plc, formed in 1902 through a joint venture of American Tobacco Co Ltd and Imperial Tobacco Co Ltd, holds a substantial 29.04% stake in ITC, valued at $19.9 billion.
Despite being classified as foreign direct investment, FDI restrictions on tobacco companies in India limit BAT’s options.

ITC’s Market Capitalization and Growth

As of the latest trading day, ITC boasts a market capitalization of $68.6 billion, outperforming BAT, which stands at $64.9 billion.
ITC’s stock has experienced a remarkable upward trend, gaining 34.7% in one year and an impressive 125.5% in three years.

Diversification Strategy

ITC’s diversification from tobacco to FMCG, hotels, papers, and agri-products has fueled investor confidence.
The tobacco business now constitutes only 37% of ITC’s gross revenue but remains a significant contributor, constituting 78% of the company’s profit before tax.

BAT’s Challenges and Industry Shift

BAT faced a downturn as its stock hit multi-year lows, plummeting 10% after a $31.5 billion write-down of the value of some US cigarette brands.
This move underscores a global trend among tobacco majors, emphasizing non-combustible products like vapes to adapt to stringent health regulations and changing consumer preferences.
BAT aims to generate half its revenue from non-combustible products by 2035.

Important Questions Related to Exams

Q: Why has ITC Ltd become the third most valuable tobacco company globally, surpassing British American Tobacco (BAT)?

A: ITC’s ascent is attributed to its diversified business strategy, including FMCG, hotels, papers, and agri-products, contrasting with BAT’s challenges amid a $31.5 billion write-down on US cigarette brands.

Q: What is the key factor driving investor confidence in ITC?

A: ITC’s robust stock performance, gaining 34.7% in one year and 125.5% in three years, reflects investor optimism fueled by the company’s diversification, rising FMCG profitability, and growth in the hospitality segment.

Q: How does BAT’s significant stake in ITC impact its market dynamics?

A: BAT holds a 29.04% stake in ITC, valued at $19.9 billion, yet faces limitations due to India’s restrictions on foreign direct investment in tobacco. BAT’s stock struggles amid a global industry shift towards non-combustible products.

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