ITC Hotel Demerger: Key Details and Analyst Outlook

On January 6, 2025, ITC shares dropped by Rs 26 per share during the special pre-open session. Later, the shares settled at Rs 455 on the BSE and Rs 455.6 on the NSE, following a special trading session organized by the exchanges. This session was designed to assess the value of ITC’s hotel business after the demerger, utilizing the price discovery method to provide investors with a clearer picture of the market value of ITC Hotels as the process progresses.

This date, January 6, 2025, also marked the ‘record date’ for shareholders. Those holding ITC shares on this date are eligible to receive shares in ITC Hotels, once the new company is listed on the stock exchanges.

ITC Hotels will be kept at a fixed price in all NSE and BSE indices for the listing day and the next three business days. If the stock hits its circuit limits, the exclusion will be delayed by two more trading days each time.

However, traders and investors won’t be able to trade this temporary version of ITC Hotels after the special pre-open session. Trading will only be allowed once the stock is officially listed on the exchanges.

Demerger Ratio and Structure

Last year, ITC decided to spin off its hotel business into a separate, publicly-listed company. The demerger ratio was set at 1:10, meaning that for every 10 shares of ITC held on January 6, shareholders will receive one share of ITC Hotels.

Following the demerger, ITC will retain a 40% stake in the hotel business, continuing its involvement in the sector.

Analysts’ Insights

Analysts believe the demerger will unlock significant value for shareholders. According to SBI Securities, the separation of ITC’s capital-heavy hotel business could lead to improved return ratios and cash flows. The analysts recommend holding onto ITC shares for long-term growth, projecting a medium-term fair value of Rs 525-550 per share for ITC.

Meanwhile, B&K Securities highlights that the downside risk in ITC stock appears limited due to the anticipated growth from its core cigarette business, value unlock from the hotel demerger, and a potential recovery in its paper business. They predict a 500-basis-point improvement in return ratios post-demerger. The brokerage maintains a “Buy” rating for ITC with a target price of Rs 588, based on a P/E ratio of 29x on an estimated FY27 EPS of Rs 20.40.

Nuvama predicts the initial market price for ITC Hotels shares could be between Rs 150 and Rs 175 per share.

According to Sharekhan, ITC Hotels may attract a premium valuation after its listing, compared to its current worth under ITC, due to improved price discovery. They estimate the share price could range from Rs 150 to Rs 170.

Nomura, however, expects the listing price to be higher, between Rs 200 and Rs 300 per share, surpassing most estimates. This would give ITC Hotels a market capitalization of Rs 42,500 crore to Rs 62,200 crore.

Meanwhile, ITC’s share price is anticipated to adjust by Rs 22-25, reflecting its 40% stake in the hotel business, along with a 20% holding discount, as per Nuvama.

What’s Next for ITC and ITC Hotels

Investors can expect ITC’s stock to benefit from this strategic move, with analysts suggesting long-term growth prospects. The hotel business, now operating independently, could create more opportunities for investors and the company itself, while ITC continues to leverage its diversified FMCG portfolio.

The overall market sentiment for both ITC and ITC Hotels appears positive, making the demerger a key event for both current and prospective shareholders.