ITC shares were on Thursday recovering from a big dip in the previous session after its biggest shareholder said it would explore options to divest a small stake in the cigarettes-to-hotels conglomerate. However, analysts at Jefferies see multiple risks for the stock.

What Happened: Jefferies downgraded the ITC stock from “buy” to “hold” and lowered its target price to ₹430 from ₹520 per share. The brokerage anticipates ITC’s share price to remain range-bound.

Following the announcement of British American Tobacco’s (BAT) intention to divest its stake in ITC, the stock witnessed a 5% decline.

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Despite ITC’s robust performance in cigarette volumes after COVID-19, recent developments, including the BAT stake sale, upcoming potential taxation amid elections and a new budget as well as a slowdown in volume growth led Jefferies to revise its outlook on the stock.

With a significant stake of 29.03% in ITC, valued at ₹1.5 lakh crore, BAT aims to maintain strategic influence with a 25% stake.

Jefferies highlighted challenges faced by BAT, including declining cigarette volumes and substantial net debt. These factors led to Jefferies’ reassessment of ITC’s cigarette business and the brokerage reduced the target multiple from 25x to 18x.

Price Action: ITC shares were up 1.09% at ₹419.05 around noon on Friday.

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