ITC Demerger: Analysts remain optimistic amid strategic restructuring, see up to 29% upside potential in shares | Stock Market News

ITC Demerger: Indian conglomerate ITC shares finally traded ex-demerger on Monday, January 6, reflecting the separation of the hotel business.

The company had set January 1, 2025, as the effective date for the demerger of its hotel business, marking a significant strategic move to unlock shareholders, with the record date set today, January 6, 2025. 

Post-demerger, ITC Hotels will operate as an independent entity, with a shareholding structure that ensures ITC shareholders retain 100% ownership of ITC Hotels – 60% directly and 40% indirectly through ITC.

Shares are expected to be listed within 60 days from the receipt of the NCLT order dated December 16, 2024.

Key Details of the Demerger

Demerger Ratio: ITC Hotels’ demerger ratio is 1:10, meaning shareholders will receive one share of ITC Hotels for every 10 ITC shares held. ITC Hotels’ shares will be listed separately, although the exact listing date is yet to be announced.

Index Impact: ITC Hotels will become the 51st constituent of the Nifty 50 and the 31st constituent of the Sensex. While it is not traded live yet, its market capitalization and price will remain constant until listing. For three trading days post-listing, live market capitalization will determine its weight in indices.

Stock Price Adjustments

During a special price discovery session on January 6, ITC Hotels’ stock price was determined. ITC shares adjusted to ₹455.60 on the NSE, down by ₹26 or 5.4%, and to ₹455 on the BSE, down by ₹27 or 5.6%.

A special pre-open session for price discovery was conducted from 9:00 AM to 9:45 AM on January 6. Normal trading in ITC shares resumed at 10:00 AM.

Financial Strength

ITC Hotels will commence operations with ₹1,500 crore in cash and cash equivalents to support growth initiatives and contingencies. The company is well-positioned to capitalize on its zero-debt balance sheet and strong cash generation capabilities.

Strategic Initiatives

Owned Hotels: 20% of the inventory is less than five years old and operates at 75% potential occupancy, offering significant room for RevPAR growth. Planned projects include a 300+ room greenfield property in Puri, expansions in Bhubaneswar, and leveraging strategic land banks.

Managed Hotels Portfolio: The pipeline includes 45 managed hotels with approximately 4,000 keys. In the past 24 months, 28 managed hotels have been opened, with plans to open more than one hotel per month over the next two years. ITC Hotels aims to grow its portfolio to over 200 hotels with more than 18,000 keys in five years, focusing two-thirds of its portfolio on managed properties.

Growth Projections: The company targets a 2.5x increase in management fees by FY30, supported by its expanding portfolio and asset-light strategy. Its robust zero-debt balance sheet and cash generation capabilities provide a strong foundation for growth.

Analysts Weigh In

The demerger of ITC Hotels is viewed as a significant strategic step, positioning the company as an independent hospitality player with a strong growth trajectory. Backed by a zero-debt balance sheet, ₹15.0 billion in cash reserves, and a robust expansion plan targeting over 200 hotels with 18,000+ keys within five years, ITC Hotels is well-equipped to leverage the growing demand in the hospitality sector. Let’s see what experts have to say:

B&K Securities: Analysts at B&K highlighted the company’s strategic focus on an asset-light, managed-hotel model, which is expected to enhance Return on Capital Employed (RoCE). They have projected ITC Hotels’ fair listing value at ₹145, based on a 25x EV/EBITDA multiple on FY26E EBITDA. However, potential supply pressures are anticipated due to British American Tobacco’s (BAT) exit.

B&K also noted that ITC’s downside risks are limited following the demerger. Enhanced prospects in the cigarette business, coupled with value unlocking from the hotels’ segment and a potential normalisation in the paper business by the next quarter, are expected to support ITC’s performance. Cigarette revenues are projected to grow by approximately 7.5 per cent year-on-year in Q3FY25, driven by a 5 per cent increase in volumes. The demerger is also expected to improve return ratios by nearly 500 basis points. With the stock currently trading at a P/E of 23.8x on FY27E EPS, B&K has maintained a Buy rating on ITC with an unchanged target price of ₹588 (29% upside), assigning a P/E of 29x on FY27E EPS of ₹20.4.

Centrum Broking: Centrum Broking set a target price of ₹583 (28% upside) for ITC, emphasizing the benefits of the proposed reorganization. According to their analysis, the demerger will allow ITC to retain interest in the hospitality business while offering sharper operational focus and an optimized cost structure, leveraging its established brand equity. This move is expected to attract strategic investors and partners aligned with the hospitality sector’s dynamics. Centrum assigned an EV/EBITDA multiple of 30x on FY26/27E, with a 20 per cent discount to Indian Hotels, estimating ITC Hotels’ value at ₹36 per share. Adjustments of ₹17 per share (approximately 4 per cent of the current market price) were also noted for ITC.

Systematix: Systematix highlighted ITC Hotels as India’s second-largest hospitality entity, boasting 140 properties compared to peers such as Indian Hotels (232), EIH (23), and Lemon Tree (112). Based on proforma financials, ITC Hotels’ valuation is pegged at ₹150 per share, applying a 25x EV/EBITDA multiple on FY26E. They estimated ITC’s stock price adjustment at ₹5 per share as of the record date. Systematix maintained a Hold rating on ITC with a target price of ₹500 (10% upside), noting that detailed company disclosures post-demerger will refine their estimates. ITC shares are trading at P/E multiples of 26x and 23x for FY26E and FY27E EPS, respectively.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.