ITC demerger: Analysts upbeat on ITC share outlook; support seen at Rs 442

Technically, ITC is seen trapped in a thin range of Rs 460 - Rs 490 for now. Meanwhile, analysts at SBI Securities are optimistic of ITC's prospects post demerger and see 15% upside for the stock.

With just four trading sessions to go for the ITC-ITC Hotels demerger record date shares of ITC continue to consolidate in a thin range of Rs 460 - Rs 480 in an otherwise volatile equity market. On Tuesday thus far despite a near 1 per cent fall in the Sensex and Nifty; ITC traded on a flat note.  ITC had set the demerger ratio at 1:10 - meaning 1 share of ITC Hotels for every 10 shares of ITC as of the record date January 6, 2025. Post demerger, ITC will continue to hold a 40 per cent equity stake in the Hotel business.  ITC post announcement of the record date for the ITC Hotels demerger in mid-December has touched a high of Rs 482 and a low of Rs 460 in the last 9 trading sessions. Technically, the stock is seen trapped between the 100-DMA (Daily Moving Average), which stands at Rs 490 and the 200-DMA, which stands at Rs 460. Interim resistance for the stock is placed at Rs 482 in the form of the super trend line.  Meanwhile, analysts are optimistic of ITC's prospects post demerger and see up to 15.3 per cent upside from present levels.  Analysts at SBI Securities recommend investors to hold on to ITC shares, post demerger, for long term given its diversified FMCG portfolio and steady growth in its core businesses (Cigarette & FMCG). Also, the demerger of its asset heavy hotels business will result in improved return ratios and cash flows. We believe, post demerger, ITC medium term fair value to be Rs 525-550 per share, the brokerage firm said in its report.    Considering an average EV/EBITDA multiple of 25.0x of its industry peers Indian Hotels and EIH, SBI Securities expects an implied fair value for ITC Hotels at Rs 141.50 per share, and ITC stock price to be adjusted by Rs 7.5 per share as of record date.  SBI Securities: Upbeat on future prospects of ITC Hotels  Given the attractive growth potential for domestic tourism industry and strong company financials, ITC Hotels has  a long runway to capture the growth opportunities in the tourism industry. Investors can participate in the growth  story of ITC’s hotel business by purchasing a minimum of 10 ITC shares on or before 03rd January, 2025.  The average EV/EBITDA multiple of its industry peers (Indian Hotels & EIH Ltd) is 25.0x. Assuming that ITC Hotels will list at an EV/EBITDA multiple of 20.0x-30.0x, the share price of ITC Hotels Ltd is expected to list in the range of Rs 113 to Rs 170 per share.  Post listing of the ITC Hotels, investors will get an opportunity to participate directly in the growth story of ITC’s hotel business. Looking at the robust key addition pipeline for ITC Hotels and strong industry tailwinds, we believe ITC Hotels has potential to outperform ITC over a medium to long term period. In the short term, there is a possibility that few shareholders (especially ETFs) may have to forcefully exit ITC Hotels and this can create   pressure on the stock price.  We believe, any short term pressure on the stock price of ITC Hotels Ltd will be a good opportunity for retail/HNI shareholders to accumulate quality business in their long term portfolio.  Technical view on ITC stock  In the short-term, the outlook for ITC remains range-bound i.e. Rs 460 - Rs 490. However, the long-term chart shows that the stock has been making higher highs and higher lows on the monthly scale. At present, the stock is seen testing support around its 20-MMA (Monthly Moving Average), which stands at Rs 442. ITC stock has been sustaining above the 20-MMA since December 2020.  Break and trade below the 20-MMA, can trigger a fall towards Rs 397 levels; with interim support expected around Rs 432 and Rs 420 levels.  On the upside, breakout and sustained trade above Rs 490 can revive the mood at the counter and the stock could potentially jump towards its recent highs around Rs 530; with interim hurdle at Rs 513 levels. CLICK HERE FOR THE CHART    Cues from the Derivatives Market  ITC January futures trades at par to the spot price at Rs 478. On Monday, ITC open interest (OI) declined by more than 7 per cent while the stock price dipped by 0.5 per cent. Today, as of 11 AM, ITC January futures has seen an addition of 0.5 per cent OI while the stock is down 0.2 per cent in an otherwise weak market.    The options chain shows a PCR of 0.36 for the January series; implying presence of higher open positions (OI) in ITC Calls as against Puts. The highest OI in Calls is seen at Rs 480 and Rs 500 Strike Price; thus suggesting likely resistance in this range in the month of January.  On the other hand, highest OI in ITC Puts is visible at Rs 470 and Rs 450 Strike Price. However, in terms of OI when compared to the most active Calls - the positions in these Puts is near about one-fifth. Hence, one may expect support for ITC closer to the Rs 450 Strike Price.