Windfall Gain

Senior executives selling their vested shares to take money home isn’t something new. However, ITC is in a different league altogether considering its gargantuan market cap of Rs.343,000 crore. In FY18 so far, insiders have sold stock worth Rs.374 crore and acquired stock worth Rs.337 crore through ESOPs. Among the top management, the most shares are held by YC Deveshwar (1,215,000), Nakul Anand (807,475), Lakshmi Narasimha Balaji (803,870), Mrigaban Ray (707,475) and Rakesh Batra (607,000) respectively.

Non-executive chairman Deveshwar had sold off all his shares in February before he handed over the reins to Sanjiv Puri and his current holding was acquired early this month. Puri has sold stock worth Rs.2.38 crore in FY18 and Rs.6.47 crore in FY17. The most aggressive seller though has been ITC veteran Nakul Anand who has sold 2.25 million shares worth Rs.63.8 crore since the beginning of this year. In FY18 alone his realisation has been Rs.51 crore and the total stock that he sold in FY17 was worth Rs.28 crore.

Anand served as the CEO of the Hotels Division till December 2015 and has been serving as executive director since January 2011. Post this transaction, Anand’s remaining holding amounts to a stake of 0.01%. As per ITC’s annual report, Anand held 232,000 ordinary shares of Rs.1 as on 31 March 2017, while 135,000 stock options were granted during FY17. In FY18, Anand acquired another 2.34 million shares, worth Rs.45.54 crore, through ESOPs on June 29.

ITC’s stock was outperforming the benchmark Sensex until it took a knocking after the imposition of additional cess in late July. On a year-to-date basis ITC is up 15.7% compared to the Sensex’s 19.6%. Its net sales grew 9.2% in FY17, amidst sluggish demand, increased input costs for the FMCG segment and renewed pressure on the cigarette industry due to higher taxation.

The FMCG segment reported a further deceleration in growth rate, due to subdued demand for the fourth consecutive year along with the demonetisation surprise. The hotels division also witnessed muted growth in profitability due to of a challenging business environment and surge in gestation costs as the firm commissioned a new project in Gurgaon.

Despite the challenges, ITC’s strong cash flow continues to make it a favored institutional holding. During the past one year mutual fund holding has nearly doubled from 2.5% to 4.23% and FIIs have only marginally reduced their stake from 20.6% in 20.03%. Among FIIs, the Government of Singapore holds a 1.3% stake and among domestic funds, LIC after having added to its legacy stake is the biggest holder with 16.29%.