Category: Case Study

BAT Stake Sale in ITC: Overview, Reasons, and Impact on Shareholders Explained
Introduction

British American Tobacco (BAT) is a major shareholder in ITC. But, recently, BAT released a statement indicating a major stake sale. Do you wonder what the future holds for BAT’s remaining stake in ITC?

Buckle up! In today’s blog, we will dive deep into the recent sale of a portion of BAT’s stake in ITC and the reasons behind it.

BAT – An Overview

BAT stands for British American Tobacco, a multinational tobacco company and a leading consumer goods business. It was founded in the year 1902 by James Buchanan Duke and is now the world’s largest tobacco company by net sales. The company currently operates in 180 countries, and its brands include Dunhill, Kent, Lucy Strike, Pall Mall, and Rothmans. It is a listed company, and its ordinary shares are listed on the NYSE (New York Stock Exchange) in the form of American Depositary Shares (ADR). Additionally, the company also has a secondary listing on the Johannesburg Stock Exchange.

The company’s corporate purpose includes providing adult consumers with a range of enjoyable and less risky products and encouraging smokers to switch to scientifically-substantiated, reduced-risk alternatives.

ITC – An Overview

ITC Limited is an Indian conglomerate headquartered in Kolkata, India. The company has a diversified presence across several industries such as FMCG, hotels, information technology, packaging, paperboards, and agribusiness. The company is a major player in the Indian economy and exports its products to over 90 countries.

ITC holds a rich history that traces back to 1910 as the Imperial Tobacco Company of India Limited. The company initially focused on tobacco products and established its first cigarette factory in Bangalore in 1913. The name was later changed to India Tobacco Company in the year 1970. The company continues to innovate and expand its FMCG portfolio while focusing on sustainability initiatives.

Read Also: ITC Case Study: Business Model, Financials, and SWOT Analysis

Holding Pattern

BAT currently owns 29% of ITC, the Indian Tobacco Company. On March 13, 2024, BAT sold 43.7 crore shares of ITC at INR 404 per share for a total of INR 17,491 crore, trimming its holding to 25.5%. The company plans to use the net proceeds of the block trades to buy back its shares over the period ending December 2025, starting with INR 7430 crore in 2024.

BAT has said that a 25% stake in ITC should be sufficient to retain strategic influence, including veto rights. The stake sale was completed through a block deal. Block deals involve selling a large number of shares all at once, usually at a discounted price. This method ensures a quick and efficient sale of significant stakes without significantly impacting the overall market price.

Reasons for Stake Sale

There are two main reasons why British American Tobacco (BAT) decided to sell a portion of its stake in ITC.

1. Returning Cash to Shareholders
BAT faced pressure from investors to receive a bigger share of the company’s profits. Selling a part of their ITC stake provided BAT with a significant amount of cash that they could use for stock buybacks and dividends.

2. Strategic Shift
The global cigarette industry is declining due to falling smoking rates and increasing government regulations. By selling some of its ITC holdings, BAT might be freeing up capital to invest in other areas or emerging technologies, which could include smokeless alternatives like vapes, heated tobacco products, or even exploring new ventures.

Impact on Shareholders of ITC
1. With BAT selling a portion of its stake, more ITC shares become available for trading in the open market. This increased liquidity can attract new investors and make it easier for existing shareholders to buy or sell their holdings.
2. The initial announcement of the stake sale caused a temporary dip in the ITC’s share price. However, it quickly recovered and was up around 4%.
3. Also, BAT’s long association with ITC might have provided strategic benefits in terms of knowledge sharing or market access. Reduced ownership can weaken this partnership and the investor’s interest as well.
4. Large block deals can cause temporary fluctuations in the share price, which can distract shareholders.
5. The use of the proceeds is still uncertain. If they do not reinvest the funds strategically, it could raise concerns about BAT’s future direction, potentially impacting investor sentiment towards ITC.
Future Outlook

Predicting the future outlook of ITC is complex and depends on several internal and external factors. Some of these factors are listed below,
1. With reduced foreign influence, ITC might get greater freedom to explore new business avenues beyond cigarettes. This will lead to diversification and higher growth in non-cigarette segments like FMCG.
2. A more independent ITC can attract new investors seeking exposure to a broader portfolio.
3. Also, the transition to a more independent structure could lead to a period of uncertainty for investors.
Overall, the future outlook of the ITC stake sale is ambiguous. While the short-term impact might involve price fluctuations, the long-term directions hinge on market forces and BAT’s internal strategies. Even though a complete exit from ITC is less likely soon, it cannot be entirely ruled out in the long term.

Successfully diversifying ITC’s product portfolio and navigating the regulatory environment will be important for long-term success.

Read Also: What is a Bonus Issue? Meaning, Process, Key Dates, and Impact Explained

Conclusion

On a parting note, the sale in ITC marks a turning point for the Indian tobacco giant. While the future remains uncertain, there is a mix of benefits and challenges on the horizon. On the positive side, ITC gains greater autonomy to explore new ventures. Eventually, the company’s success will depend on its ability to adapt.

Frequently Asked Questions (FAQs)
1. Will BAT sell its entire stake in ITC eventually?
  This is uncertain; BAT has not indicated further stake sales, but the long-term strategy could change.
2. Does this stake sale mean the end of cigarettes in India?
  No, but the cigarette market is declining, and ITC might need a strong non-cigarette strategy to survive in the long run.
3. Why did BAT sell its stake in ITC?
  BAT had two broad reasons for its stake sale, which are returning cash to shareholders and a strategic shift.
4. What is the overall outlook for ITC?
  The company’s future outlook is uncertain, but if they diversify effectively, the future can be promising.
5. Will the stake sale impact ITC stock price?
  The stake sale may result in short-term uncertainty. However, the long-term impact depends on ITC’s future performance.

Disclaimer: The securities, funds, and strategies mentioned in this blog are purely for informational purposes and are not recommendations.

April 1, 2024

Punjab National Bank (PNB) Case Study: Overview, Financials, and SWOT Analysis

Do you also consider PSU banks to be safer than private banks? Most of India thinks along these lines, but very few perform extensive research before investing their hard-earned money in them. Therefore, today’s blog will focus on a popular PSU bank, PNB, and understand its KPIs, business segments, and financials.

Overview

Punjab National Bank was established in New Delhi, India. The company’s offerings include retail and commercial banking, agricultural and international banking, and other services. Its retail and commercial banking portfolio provides debit and credit cards, corporate cash management, retail loans, deposit services, and trade finance. Its international banking portfolio includes foreign currency accounts, money transfers, letters of guarantee, world travel cards, and solutions for non-resident Indians.

Punjab National Bank also provides merchant banking services, mutual funds, depository services, insurance, and other services through the Internet. The bank is based in India but also operates in the United Kingdom, Bhutan, Myanmar, Bangladesh, Nepal, and the United Arab Emirates.

Company Type	Public
Industry	Banking and Financial services
Founded	1894
Managing Director	Atul Kumar Goel

Awards and Recognition

2016: Innovative Practices in Women’s Empowerment
2020: Most Innovative Project using Technology for ‘PNBOne’
2023: Iconic Brands of India by the Economic Times
2023: Employee Happiness Award
2023: Best CSR/Social Development Campaign for Rural India by Eggfirst Chalo
2023: CEO of the Year by Great Indian BFSI Awards 2023

Products and Services

Loans: Punjab National Bank offers various types of loans for retail customers, including students. They offer personal, home, car, and gold loans.
Credit Cards: The bank offers different types of credit cards designed to cater to the needs of its customers across categories such as traveling, dining, shopping, etc.
Debit cards: The bank offers debit cards to allow its customers access to instant and cashless transactions.
Insurance: The bank partners with leading insurance companies to provide a variety of insurance products, including life insurance, health insurance, and travel insurance, to its customers.
Foreign exchange services: It offers foreign exchange services, including currency, remittances, exchange, and travel cards, to its customers who need to transact in foreign currencies.
Digital banking: It provides various digital banking services, including Internet banking, mobile banking, and UPI, to make it easier for its customers to access and manage their accounts and financial transactions.
Investment Product: It provides various investment products, such as mutual funds, government securities, and fixed deposits, to assist its customers in growing their wealth.
Account: The bank provides two different accounts, i.e. Savings and Current Accounts.

Saving Account: A basic savings account can be opened by any individual with an initial deposit of Rs 500. It also provides an ATM cum Debit Card and other advantages like free transfer of funds and free Internet banking.
Current Account: This account is suitable for customers who perform frequent banking transactions.

Key Highlights of FY23-24

Savings deposits increased to ₹ 4,78,880 Crore as of December’23, from ₹ 4,51,945 Crore as of December’22, registering a growth of 6.0% on a YoY basis.
CASA ratio stands at 42.47% as of December’23.
Net Profit for Q3 FY’24 was at ₹ 2,223 Crore, increasing by 253.4% on a YoY basis.

Market Data

Let’s have a look at some essential market data of the company:

Market Cap	₹ 136,977 Cr.
TTM P/E	17.95
ROCE	5.86 %
Book Value	82.65
ROE	3.32 %
High / Low	133 / 44.4
Dividend Yield	0.53 %
Face Value	₹ 2.00

(As of 30th March 2024)

Financial Highlights

Income Statement

Particulars	Mar-23	Mar-22	Mar-21	Mar-20
Interest Earned	86,845.29	76,241.83	81,935.03	54,918.48
Other Income	12,239.59	12,097.66	12,234.91	9,387.65
Total Income	99,084.88	88,339.49	94,169.94	64,306.13
Profit Before Tax	4,861.42	4,594.46	3,782.35	827.00
Consolidated Profit	3,348.45	3,860.74	2,561.97	438.45

(In Crores)

Cash Flow Statement

Particulars	Mar-23	Mar-22	Mar-21	Mar-20
Cash From Operating Activities	22,592.09	20,032.33	1,239.53	-12,793.04
Cash Flow from Investing Activities	-732.47	-1,204.38	-786.84	-338.33
Cash from Financing Activities	1,274.98	2,031.50	5,415.17	13,591.15
Net Cash Inflow / Outflow	23,134.60	20,859.45	5,867.86	459.78

(In Crores)

Financial Ratios

Particulars	Mar-23	Mar-22	Mar-21	Mar-20
Adjusted EPS (₹)	3.04	3.51	2.45	0.65
Cash EPS (₹)	3.61	4.15	2.99	1.45
Adjusted Book Value (₹)	85.76	82.22	81.44	87.74
Dividend per Share (₹)	0.65	0.64	0.17	0.05
Cash Flow per Share (₹)	20.52	18.19	1.18	-18.99
Free Cash Flow per Share (₹)	-0.79	1.06	-21.62	-39.80

KPIs

Particulars	Mar-23	Mar-22	Mar-21	Mar-20
NIM (%)	2.48	2.34	2.60	2.22
ROE (%)	3.32	4.18	2.98	0.72
ROA (%)	0.22	0.28	0.20	0.04

Shareholding Pattern

Particulars	Dec-23	Sep-23	Jun-23	Mar-23	Dec-22
Indian Promoter	73.15	73.15	73.15	73.15	73.15
DIIs	13.74	13.80	13.45	13.52	12.98
FIIs	3.10	2.65	1.82	1.71	1.71
Others	10.01	10.40	11.58	11.62	12.16

(In %)

The graph indicates a stagnancy in the shareholding pattern. This shows the trust of institutional investors.

Peer Comparison

Particulars	Punjab National Bank	HDFC Bank	ICICI Bank	State Bank Of India	Kotak Mahindra Bank
Market cap (₹ Cr)	1,36,922	11,00,185	7,69,544	6,71,666	3,55,003
Interest Income (₹ Cr)	1,04,688	2,51,764	1,51,348	4,19,802	53,062
Net Interest Income (₹ Cr)	39,669.81	1,18,710.68	83,184.21	1,77,258.81	32,477.35
RoA (%)	0.47	3.09	2.10	1.06	2.79
Price to Earnings	17.80	18.46	17.98	10.37	20.15
Price-To-Book	1.36	2.49	3.19	1.75	2.82

SWOT Analysis

Strengths

It offers a wide range of banking services, catering to both urban and rural customers and international clients. The bank serves a diverse customer base and effectively meets their banking needs and requirements.
The bank has a long history of providing services of utmost quality.
The bank has created a positive reputation that distinguishes it from its competitors.

Weaknesses

Punjab National Bank exists in a highly competitive environment, with numerous players vying for market share.
The bank must invest in advanced technological infrastructure and offer convenient and secure online banking services to meet changing customer requirements and expectations.

Opportunities

Punjab National Bank must display an increase in net profit margin and favorable NIM (Net Interest Margin).
The bank should continuously monitor and evaluate its performance against established benchmarks and adjust its strategies as needed.

Threats

In 2018, Punjab National Bank suffered from controversies such as the Nirav Modi scam, where fraudulent transactions worth $2 billion were conducted through PNB’s Mumbai branch without detection for a long time, tarnishing the bank’s reputation significantly.
New entrants can give tough competition to the Punjab National Bank. It can impact the bank’s profitability and financial stability.

Conclusion

Punjab National Bank is a public sector undertaking in India that offers a wide range of banking and financial services. It has a strong presence in various segments, including retail and commercial banking, international banking, and digital banking. The bank has experienced growth in its financial metrics and is expected to continue growing. Overall, Punjab National Bank is a reputable institution with a diverse customer base and a positive outlook.

However, it is advised that you perform your own analysis before investing your hard-earned money.

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Frequently Asked Questions (FAQs)

Is PNB a private or government bank?
Punjab National Bank is a government entity public sector bank.
Who established the Punjab National Bank?
Punjab National Bank is an Indian Public sector bank, established on 19th May 1894 by Sardar Dyal Singh Majithia.
What is the book value of Punjab National Bank?
As of 25th March 2024, the per share book value of PNB is ₹ 82.65.
Who is the CEO of PNB?
Atul Kumar Goel is the current Managing Director and Chief Executive Officer of Punjab National Bank.
Which banks merged with PNB in 2020?
The Oriental Bank of Commerce and the United Bank of India (UBI) merged with PNB in 2020.

April 1, 2024

Patanjali Foods Case Study: Business Model, Financials, KPIs, and SWOT Analysis

Patanjali, the name itself, evokes a sense of tradition and well-being. Over time, it has become a household name in India. Patanjali is a modern consumer goods company that provides everything from herbal remedies to healthy staples in India, and is known for its Ayurvedic and natural products.

In today’s blog, we will delve deeper into Patanjali Foods, a brand synonymous with a back-to-nature approach, and explore the company’s financials, SWOT analysis, and business model.

Patanjali Overview

Baba Ramdev and Acharya Balkrishna established Patanjali Ayurveda Limited in Haridwar in 2006. Patanjali Foods was initially founded as Ruchi Soya Industries Limited. The company initially concentrated on manufacturing herbal formulations and ayurvedic medications. They started producing food, household goods, and personal care items later in 2010 after entering the fast-moving consumer goods (FMCG) industry.

Ruchi Soya Industries declared bankruptcy in the year 2019 as a result of heavy debt. In June 2022, Ruchi Soya Industries Limited formally changed its name to Patanjali Foods Limited after Patanjali Foods purchased the bankrupt company in 2019. The company produces bakery fats, soy products, edible oil, and Vanaspati Ghee.

The company grew tremendously between 2015 and 2017 due to aggressive marketing efforts and strong brand recall.

Patanjali Business Model

The business model of Patanjali Foods is built around a number of essential components

1. The company targets customers who like natural products and concentrates primarily on Ayurveda and natural ingredients in its products.

2. The company maintains standards and quality because it has direct control over many areas of the production process, including the supply chain and raw material purchases.

3. The company draws customers who are sensitive to price changes because they offer their items at very reasonable costs.

4. The company’s extensive distribution network, which consists of franchise stores, supermarkets, and its own retail locations, makes its products easily accessible to consumers.

Market Details

Current Market Price	INR 1372
Book Value	INR 272
52 Week High	INR 1713
52 Week Low	INR 864
Face Value	INR 2
PE Ratio	59.51
Market Capitalization	49,587 Crores

(As of 21^st March 2024)

Patanjali Financial Highlights

Balance Sheet

Particulars	31^st March 2023	31^st March 2022	31^st March 2021
Non-Current Asset	5415.1376	5124.7768	5320.7144
Current Asset	7824.7724	6351.3587	3688.1054
Total Asset	13243.5856	11480.2111	9008.8198
Equity	9846.5667	6170.8404	4062.4128
Long Term Liability	193.3653	3054.0267	3215.1662
Current Liability	3201.9236	2253.6140	1731.2408

(In Crores)

From the above table and graph, it is evident that the company’s total assets have increased over time. It was 11480 crore in the year 2022 and increased to 13243 crores in FY 2023. Still, their non-current assets remain constant, and their long-term liability has decreased drastically in FY 2023. It was 3054 crore in FY 2022 and decreased to 193 crores in FY 2023.