On January 1, 2025, ITC Hotels will demerge and become a separate company, preserving full ownership for shareholders. The shares are anticipated to list within 60 days, and the demerger ratio is 1:10. According to analysts, this is a calculated attempt to increase shareholder value in the hospitality industry.
ITC Demerger: On Monday, January 6, shares of the Indian conglomerate ITC finally traded ex-demerger, indicating the hotel business's split.In a major strategic move to free shareholders, the company had designated January 1, 2025, as the effective date for the demerger of its hotel industry. The record date was established today, January 6, 2025.
With a shareholding structure that guarantees ITC stockholders maintain 100% ownership in ITC Hotels—60% directly and 40% indirectly through ITC—ITC Hotels will function as an independent business following the demerger.
Within 60 days of receiving the NCLT order dated December 16, 2024, shares are anticipated to be listed.
Important Information Regarding the Demerger Ratio: Because of ITC Hotels' 1:10 demerger ratio, stockholders will get one share of ITC Hotels for every ten ITC shares they now own. The precise offering date for ITC Hotels' shares has not yet been disclosed, but they will be listed separately.
Impact on the Index: ITC Hotels will rise to the position of 31st in the Sensex and 51st in the Nifty 50.Its price and market capitalization will not change until listing, even though it is not currently traded live. Its weight in indices will be determined by its live market capitalization for three trading days after listing.
Changes in Stock Prices
The stock price of ITC Hotels was established on January 6 at a special price discovery session. ITC shares decreased by ₹26 or 5.4% to ₹455.60 on the NSE and by ₹27 or 5.6% to ₹455 on the BSE.
On January 6, a special pre-open session for price discovery was held from 9:00 AM to 9:45 AM. At 10:00 AM, regular trading in ITC shares resumed.
Strength in Finances
With ₹1,500 crore in cash and cash equivalents, ITC Hotels will launch operations to fund expansion plans and unforeseen expenses.The business is in a good position to benefit from its excellent cash generation capabilities and debt-free balance sheet.
Strategic Initiatives Owned Hotels: There is a lot of opportunity for RevPAR growth because 20% of the inventory is under five years old and operates at 75% potential occupancy. A greenfield property with more than 300 rooms in Puri, Bhubaneswar extensions, and the use of strategic land banks are among the planned projects.
Portfolio of Managed Hotels: There are 45 managed hotels in the pipeline, totaling over 4,000 keys. 28 managed hotels have opened in the last 24 months, and over the next two years, there are plans to open more than one hotel every month.. In five years, ITC Hotels wants to expand its portfolio to include more than 200 hotels and 18,000 keys, with managed properties accounting for two-thirds of the total.
Growth Projections: With the help of its growing portfolio and asset-light strategy, the company hopes to boost management fees by 2.5 times by FY30. It has a solid basis for expansion because to its high cash creation and zero-debt balance sheet.
Analysts' Opinions
ITC Hotels' demerger is seen as a major strategic move that positions the business as a stand-alone operator in the hotel industry with a promising future. With ₹15.0 billion in cash reserves, a debt-free balance sheet, and a solid expansion strategy aimed at more than 200 hotels with 18,000+ keys in five years,ITC Hotels is prepared to take advantage of the expanding demand in the hotel industry. Let's hear the opinions of experts:
B&K Securities: The company's strategy emphasis on an asset-light, managed-hotel model was emphasized by analysts at B&K, which is anticipated to improve Return on Capital Employed (RoCE). Based on a 25x EV/EBITDA multiple on FY26E EBITDA, they have estimated the fair listing value of ITC Hotels at ₹145. However, the departure of British American Tobacco (BAT) is expected to result in possible supply difficulties.
B&K also pointed out that after the demerger, ITC's downside risks are minimal. ITC's performance is anticipated to be supported by improved prospects in the tobacco industry, value unlocking from the hotels segment, and a possible normalization in the paper business by the upcoming quarter.In Q3FY25, cigarette revenues are expected to increase by roughly 7.5% year over year, mostly due to a 5% increase in volume. Additionally, return ratios should improve by almost 500 basis points as a result of the demerger. B&K has kept its buy rating on ITC at a P/E of 29x on FY27E EPS of ₹20.4 and has maintained an unaltered target price of ₹588 (29% upside) with the company now trading at a P/E of 23.8x on FY27E EPS.
Centrum Broking: Highlighting the advantages of the suggested reorganization, Centrum Broking set a target price of ₹583 (28% upside) for ITC. Their study indicates that the demerger will provide a more focused operational approach and an optimal cost structure, while still enabling ITC to maintain its stake in the hospitality industry.utilizing its well-established brand value. It is anticipated that this action would draw partners and strategic investors who understand the dynamics of the hospitality industry. With a 20% discount to Indian Hotels, Centrum gave an EV/EBITDA multiple of 30x on FY26/27E, estimating the value of ITC Hotels at ₹36 per share. It was also highlighted that ITC had adjustments of ₹17 per share, or around 4% of the current market price.
Systematix: With 140 properties, ITC Hotels is the second-largest hospitality company in India, behind competitors like Indian Hotels (232), EIH (23), and Lemon Tree (112). Using a 25x EV/EBITDA multiple on FY26E, ITC Hotels' valuation is set at ₹150 per share based on proforma financials.
As of the record date, they calculated that ITC's stock price adjustment would be ₹5 per share. With a target price of ₹500 (10% upside), Systematix kept its Hold rating on ITC, stating that thorough business disclosures after the demerger will help them fine-tune their projections. For FY26E and FY27E EPS, ITC shares are trading at P/E multiples of 26x and 23x, respectively.
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