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ITC Limited, a prominent Indian conglomerate, stands at a pivotal juncture following its announcement to demerge its hotel business, a move scheduled for January 1st, 2025. This strategic decision, publicly disclosed on December 17th, 2024, has captivated investor attention and triggered considerable market activity. The overwhelming shareholder support received earlier in the year, with a remarkable 99.6 percent of public institutions and 98.4 percent of public non-institutions voting in favor, underscores the widespread confidence in this restructuring. The demerger, approved by the Kolkata bench of the National Company Law Tribunal (NCLT) in October 2024, will see the creation of ITC Hotels Limited (ITCHL). Existing ITC shareholders will receive one share of ITC Hotels for every ten shares they currently hold, with the record date set for January 6th, 2025, to determine eligibility for the equity distribution. Post-demerger, ITC will retain a 40 percent stake in ITC Hotels, while the remaining 60 percent will be distributed among its shareholders. ITC Hotels will pay a nominal royalty fee to ITC for continued use of its brand name, signifying a continuing albeit less direct relationship.
This demerger is not simply a restructuring; it's a carefully orchestrated strategy within a larger context of ITC’s ambitions in the hospitality sector. Concurrently with the demerger announcement, ITC revealed strategic acquisitions through its wholly-owned subsidiary, Russell Credit. These acquisitions include a 2.44 percent stake in EIH (Oberoi Hotels) and a 0.53 percent stake in HLV Ltd (The Leela). These investments elevate ITC's existing holdings in EIH to 16.13 percent and in HLV to 8.11 percent, considerably strengthening its presence and competitive position within the premium hotel market. The acquisitions signal a long-term commitment to expansion in this sector, suggesting that the demerger is not a retreat but rather a repositioning for more focused growth and efficiency in both the hotel and non-hotel arms of the business. The move allows for independent management and strategic decision-making suited to the specific needs of each entity.
Despite the positive developments surrounding the demerger and strategic acquisitions, ITC’s stock performance in 2024 has been relatively subdued. While showing resilience, with an 18 percent rebound from its 52-week low in March 2024, the year-to-date growth has only exceeded 1 percent, lagging behind the Nifty's 10 percent rise. Recent months have witnessed fluctuations, including a 2.5 percent decline in November and a more significant 6 percent drop in October. The stock's current trading price of ₹470.65 places it approximately 11 percent below its all-time high of ₹528.55, achieved in September 2024. This underperformance against the broader market has led to some investor questions regarding whether ITC has fully tapped into its potential. However, the context of recent market volatility and the significant restructuring effort underway needs to be considered.
This brings us to the analysis from industry experts. From a technical perspective, analysts express a bullish outlook. Ajit Mishra, Senior Vice President of Research at Religare Broking, points to ITC's consolidation within a range of ₹450 to ₹480, with support at the long-term moving average (200 DEMA). He suggests that a decisive breakout above this range could propel the stock towards the ₹500 mark. Similarly, Jigar S Patel, Senior Manager of Technical Research at Anand Rathi Shares and Stock Brokers, notes the establishment of strong support near the ₹450 level following a 15 percent correction from the peak. He emphasizes the bullish divergence on the Relative Strength Index (RSI), further reinforcing the case for an upward trend, making ITC attractive for long positions in the ₹465-470 range, with a target of ₹500. These technical analyses paint a picture of a stock poised for growth, once it breaks through the current consolidation phase.
The fundamental outlook on ITC is equally positive. Macquarie, for example, maintains an 'outperform' rating, with a price target of ₹560. While acknowledging challenges related to the current tax structure on cigarettes, including high GST rates and compensation cess, Macquarie believes ITC's strategic approach to navigating these pressures will ensure continued growth. ICICI Securities, another prominent brokerage firm, identifies ITC as a top pick in the sector. They highlight the company's stable cigarette volume growth despite price increases implemented to counter inflation, underscoring a strong pricing power. The increased regulatory enforcement against illicit cigarettes and a favorable tax regime for organized players have enabled ITC to expand its market share. Furthermore, ICICI highlights the consistent resilience of ITC's FMCG segment, which maintains strong performance even amidst margin pressures. These fundamental analyses emphasize the company's strong position across various sectors, mitigating the risks associated with the cigarette business.
In conclusion, ITC's demerger presents a complex but potentially highly rewarding scenario for investors. While short-term stock performance has been somewhat subdued, the long-term outlook, supported by both technical and fundamental analyses, remains positive. The strategic acquisitions in the hospitality sector, combined with the efficient separation of the hotel business, position ITC for focused growth and improved operational efficiency across its diverse portfolio. While challenges related to the cigarette business and broader market volatility persist, the strong underlying fundamentals and the positive sentiment surrounding the demerger suggest a promising future for ITC, making it an investment worth close monitoring.
Source: Stock Check: ITC’s demerger announcement sparks investor interest: What’s next for the conglomerate?