British American Tobacco p.l.c. (LSE:BATS) (BAT), the single-largest shareholder in ITC Limited (NSEI:ITC), plans to sell its stake in the soon-to-be demerged hotel business of the Indian conglomerate, said Chief Executive Officer Tadeu Marroco. He said BAT is also exploring ways to "unlock shares" in ITC to achieve "financial flexibility" for the future. BAT is also looking to roll out its oral tobacco products in India, Marroco said without elaborating.

BAT will directly own 15.32% in the demerged listed entity, ITC Hotels Limited, as foreign direct investment. This will make BAT the second largest shareholder in the hospitality company after ITC's promoter holding of 39.93%, according to the demerger document. The demerger scheme was approved by the National Company Law Tribunal on October 4. ITC said previously that it expects to complete the entire demerger process including the public listing of ITC Hotels this financial year.

"ITC Hotels, definitely there is no intention for us to be shareholders in hotels in India. Let's be very clear. So, whenever we believe there is the right timing, we're going to sell it," Marroco told institutional investors during BAT's capital markets day meet last week in Southampton, UK.

He said the divestment of stake in ITC Hotels is part of BAT's plans to "create financial flexibility" where it can generate enough cash to continue its "sustainable buy-back programme". As of September, BAT owned 25.45% in ITC. The other major shareholders are LIC with a 15.17% stake and Specified Undertaking of the Unit Trust of India with 7.79%.

ITC didn't respond to ET's email queries. While Marroco hinted at BAT further trimming its stake in ITC, he emphasised that it is a "cumbersome process" and "there is a foreign direct investment ban (in tobacco sector) in India, which means that if you sell, you don't come back". He noted that ITC is a "very well run, very successful company that performs at a pace of growth that is even much higher than the average of BAT".

BAT is working with ITC to "unlock" its shareholding in the Indian company to get the financial flexibility for the future. "This (ITC) is the largest asset in our balance sheet.and being so, it is natural that the main board (of directors) will be constantly reviewing the best way to deploy the assets that we have there," said Marroco. He said unlocking shares in ITC "is not as straightforward as one could think because the central bank in India, to certify the sales, they require us to prove all the history of the shareholding that dates back to the 1930s, and we have to collect board meetings and all that every time we have a bonus split and all that." "I'm not being dogmatic about ITC, but I'm just trying to put into perspective and from one side, the attractiveness of the market, the fact that ITC is a fantastic company, from the other side, a very large stake for BAT and an important asset to keep financial flexibility for the group, underpinning all that, our efforts to get with ITC to unlock the share," said Marroco.