Centrum Broking has retained its 'Buy' rating on ITC Ltd as the demerger of ITC Hotels get effective from January 1. It noted that the reorganisation would ensure continued interest of ITC in hospitality business with a sharper focus and optimal cost structure, banking on its brand equity and goodwill.
ITC holds 140 properties with 13,000-plus keys (45 per cent owned) across 90-plus locations under six brands in luxury, premium & budget segments. Its management aims to reach 200-plus hotels and 18,000 keys (35 per cent owned) by CY30. We expect 13.8 per cent revenue CAGR over FY24-27E with an Ebitda margin of 35 per cent led by strong growth in domestic demand for the hospitality sector.
"The demerger will help the new entity in attracting appropriate investors and strategic partners, whose strategies and risk profiles are aligned more sharply with the hospitality industry. We assign EV/Ebitda of 30 times on FY26/27E (20 per cent discount to Indian Hotels) to arrive Rs 36 per share value (40 per cent ITC’s holding & 20 per cent hold discount) and would adjust Rs 17 per share (4 per cent on CMP) from ITC," it said.
Centrum maintained positive outlook on the development and suggested a target price of Rs 583 on ITC, implying a valuation of 31.6 times September FY27 EPS.
Centrum Broking said the hotel business contributed 4.3 per cent of ITC’s overall sales in FY24 and made up EBIT contribution of 3.1 per cent with an Ebitda margin of 34 per cent. ITC incurs over 20 per cent of its total capex on the hotel business.
"We expect revenue to grow 13.8 per cent CAGR over FY24-27E with an Ebitda margin of 35 per cent. Based on our calculations, at an EV of Rs 42,000-45,000 crore, adjusting for Rs 1,500 crore net cash, intrinsic equity value for ITC Hotels comes around Rs 200 per share while on the ex-date the initially price recovery could be on the lower range of Rs 165-180 per share," Centrum said.
Other brokerages see a price discovery of Rs 150-175 per share for ITC Hotels in the special pre-open session on January 6. They have neutral to positive view on ITC shares.
BAT holding in the Hotels business at 15 per cent could be the bigger risk for shareholders where ITC has to bring strategic investor, Centrum said.
Systematix estimates ITC stock price to adjust by Rs 5 per share as on the record date. "We currently maintain HOLD rating on ITC with target price of Rs 500, and will review our estimates post detailed disclosures by the company. Stock trades at P/E of 26 times/23 times FY26E/FY27E EPS," Systematix said.
Ahead of ITC demerger, Antique Stock Broking recommended 'Buy' on ITC on December 26, with a target price of Rs 563 based on FY27E estimates, implying a PE of 26 times.