ITC down 1% ahead of ex-date for hotel business on Monday, January 6

As per the demerger scheme, eligible shareholders will receive one share of ITC Hotels for every 10 shares held in ITC, with an effective record date of January 6, 2025

Shares of ITC are down 1 per cent at Rs 483.65 on the BSE in Friday’s intra-day trade amid heavy volumes on profit booking ahead of ex-date for the company's demerger of its hotel business on Monday, January 6. In the past two weeks, the stock had gained 5 per cent.

 

ITC Hotels was incorporated as a wholly-owned subsidiary of ITC in July, 2023, with its main objective being the hotels and hospitality business. The hotels business of ITC includes ownership, licensing and management of several hotel properties and providing services, including accommodation, dining, and banqueting among other services.

 

ITC, in an exchange filing, said the company and ITC Hotels have mutually agreed to fix Monday, January 6, 2025, as the record date for the purposes of determining the shareholders of the company to whom equity shares of ITCHL would be allotted. Shares of ITC Hotels are set to be listed within 60 days from the date of receipt of NCLT Order (i.e. December 16, 2024). 

 

The company's hotels business demerged effective from January 1, 2025. As per the demerger scheme, eligible shareholders will receive one share of ITC Hotels for every 10 shares they hold in ITC. Post the demerger, ITC will have a 40 per cent stake in the hotels business, while the remaining 60 per cent will be held by ITC’s shareholders (post demerger equity capital – Rs 208 crore). ITC Hotels is likely to be listed on the stock exchange in the coming months (likely listing in February, 2025).

 

The hotels business of ITC has matured over the years and is well poised to chart its own growth path and operate as a separate listed entity in the fast-growing hospitality industry whilst continuing to leverage ITC’s institutional strengths, strong brand equity and goodwill. Therefore, the scheme is being proposed to segregate the company's hotels business from the remaining businesses, and demerge it into the resulting company, ITC had said on rationale behind demerger of hotel business.

 

ITC is a diversified consumption play with presence in businesses such as cigarettes, fast moving consumer goods (FMCG), hotels, agri and paperboard, paper & packaging (PPP) in India.

 

According to analysts at ICICI Securities, the demerged hotels business will continue to persevere with its asset right strategy to achieve the next phase of growth in the company (revenues and Ebitda to grow at a compound annual growth rate (CAGR) of 14 per cent and 18 per cent over FY24-27E). 

 

ITC will provide institutional support in the form of brand, governance and access to synergies. A strong debt-free balance sheet and cash flows will help the business to raise capital for its growth in the coming years. On the other hand, the return profile of ITC (excluding the hotels business) will also improve substantially post the demerger. Favourable cross-synergies will be created for FMCG business (including food and personal care).  The resulting structure of the company also provides an opportunity to exit from the hotel business if it is not part of an investors' respective investment strategy, the brokerage firm said in the company's update.

 

With a favourable demand-supply scenario, ITC’s hotel business is expected to perform well in the coming years backed by asset-light growth strategy. "Based on revenue and Ebitda growth assumption, we derived a potential price target of Rs 195 for ITC Hotels, providing an upside of 15-30 per cent depending on the expected listing price of Rs 150-170," analyst at ICICI Securities said.

 

“Post demerger, ITC’s stock price could get adjusted by Rs 12-15/share. With a focus on driving the core, the earning and return profile of ITC will improve in the long run. We recommend Buy on ITC with a target price of Rs 555,” the brokerage firm added.