Shares of ITC Ltd will turn ex-date for hotel business demerger today. Monday is also the record date for the determining the eligible shareholders of ITC, who will get one share of ITC Hotels Ltd for every 10 ITC shares they held. 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. Analysts are expecting ITC Hotels to likely to get listed in February.
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Batlivala & Karani Securities in a note said: "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. Its strategic emphasis on an asset-light managed hotels model provides a competitive edge and better RoCE prospects. We expect listing fair value of ITC Hotels at Rs 145 at 25 times EV/EBitda multiple on FY26E Ebitda," it said.
The brokerage, however, expects a supply overhang due to exit of British American Tobacco (BAT).
B&K Securities said the downside is limited for ITC Ltd, considering the enhanced prospects from cigarette business, value unlocking from demerger of hotels business and likelihood of paper business returning to normal growth from next quarter. It expects cigarettes business revenues to grow by 7.5 per cent YoY in the December quarter, driven by a 5 per cent growth in cigarette volumes.
"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. The stock is currently trading at a P/E of 23.8 times on FY27E EPS, we are maintaining our 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.
ITC Hotels will remain priced at a fixed value in all NSE and BSE indices, determined by the difference between ITC's closing price on January 3, 2025, and the opening price discovered during the Special Pre-Open Session (SPOS) on January 6, 2025.
The stock will be removed from all NSE and BSE indices at its last traded price, effective three business days after the opening of ITC Hotels' listing. If the stock hits circuit limits, the exclusion will be delayed by two trading days for each circuit limit hit.
For example, if ITC Hotels is listed on February 10, 2025, it will be removed from the indices on February 13, 2025.
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.
Post-demerger, ITC's stock price is expected to adjust by Rs 12-15 per share, according to the brokerage. It added that focusing on the core business will improve ITC's long-term earnings and return profile. As a result, the broking firm maintained a 'Buy' rating on ITC.
Systematix, on the other hand, estimates that ITC's stock price will adjust by Rs 5 per share as of the record date. The brokerage continues to hold a 'HOLD' rating on ITC with a target price of Rs 500 and plans to review its estimates after more detailed disclosures from the company. The stock currently trades at a P/E of 26x/23x for FY26E/FY27E EPS.
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.
It 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.
"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.
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