Shares of ITC Ltd dropped 6 per cent in the early trading session on Monday after the cigarette-to-FMCG major spun-off its hotel business into a separate entity, which shall be listed at the bourses in the coming session. However, the fall in the share price is notional as it indicates the price of the demerged hospitality business.
In Monday's special pre-open session, shares of ITC settled at Rs 455 apiece, indicating a 5.6 per cent decline from its previous close at Rs 482 apiece. However, the Rs 27-cut is a fixed price value of ITC Hotels share from each share of the ITC. Eligible shareholders of ITC would get one share of ITC Hotels for every 10 shares held in ITC.
Post-demerger, ITC Hotels will operate as an independent entity, with its shareholding structure ensuring that ITC shareholders retain 100 per cent of ITC Hotels – 60 per cent directly and 40 per cent indirectly through ITC.
The special pre-open trading session was conducted between 9.00 am to 9.45 am on Monday and normal trading in ITC shares resumed from 10 am in the session. ITC Hotels' stock price is determined by the difference between ITC's previous close on Friday and the opening price discovered during the special pre-open session earlier today.
The price for ITC Hotels will stay fixed in all NSE and BSE indices. The demerged entity will be listed on the bourses in February. Until the listing of ITC Hotels, the stock would have a dummy ticker on indices. No buying or selling would be allowed on ITC Hotels until the listing.
Backed by a zero-debt balance sheet, Rs 1,500 crore in cash reserves, and a robust expansion pipeline targeting 200+ hotels with 18,000+ keys in five years, ITC Hotels is set to capitalise on increasing demand in the hospitality sector, said B&K Securities. "Its strategic emphasis on an asset-light managed hotels model provides a competitive edge and better RoCE prospects. We expect to list the fair value of ITC Hotels at Rs 145 at 25 times EV/EBitda multiple on FY26E Ebitda," it said.
"We are confident about our positive outlook on the stock considering the long-term annual volume growth of 4-5 per cent we are building in the cigarette business. We should also see a close to 500 bps jump in return ratios on hotel demerger, it added maintaining 'buy' rating on the stock with an unchanged target price of Rs 588, by assigning a P/E of 29x on FY27E EPS of Rs 20.40.
ICICIdirect, calling the demerger of ITC’s hotel business a win-win for shareholders, has set a target price of Rs 195 for ITC Hotels shares, representing a potential upside of 15-30% over its expected listing price of Rs 150-170. The brokerage values ITC shares at Rs 555.
Centrum Broking believes that the demerger could benefit the new entity by attracting investors and strategic partners, whose strategies and risk profiles are better aligned with the hospitality industry.