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Amnish Aggarwal's analysis predicts a significant positive impact on ITC investors following the demerger of ITC Hotels. The core of his prediction hinges on the upcoming budget and the potential impact of excise duties. If the budget maintains the status quo regarding excise duties, Aggarwal believes that the listing of ITC Hotels could result in a gain of approximately ₹20 per ITC share. This projection is based on a valuation of ITC Hotels at around ₹32,000 crore, representing a 25 times EV/EBITDA multiple. Aggarwal highlights the company's zero-debt status and the ₹1,500 crore in cash reserves as contributing factors to this valuation. He further notes the positive momentum in the hotel and tourism sector, expecting double-digit increases in average revenue rates (ARRs). While ITC will retain a 40% stake in ITC Hotels, potentially reducing ITC's sum of the parts (SOTP) valuation by ₹15-17 per share, the overall impact is seen as positive for shareholders. The potential ₹20 per share gain is presented as a key driver of double-digit returns for ITC stock if excise duties remain unchanged. This assessment is made within the context of broader market volatility linked to factors such as the change in US presidency and the upcoming earnings season.
Beyond the immediate impact of the ITC Hotels demerger, Aggarwal points to two other key events influencing ITC's near-term prospects. Firstly, the possibility of an interim dividend payout around mid-February. Secondly, and perhaps most significantly, the February budget and its potential adjustments to excise duties. The outcome of these events directly influences the overall market outlook for ITC. The analysis underlines the uncertainty inherent in short-term market predictions, with Aggarwal acknowledging potential volatility in the next couple of months due to geopolitical factors and upcoming earnings announcements. While acknowledging uncertainties, Aggarwal foresees market stabilization and double-digit returns for the markets within the year, indicating a more optimistic long-term view. The analysis touches upon the impact of various factors on the IT sector, including H-1B visa issues, geopolitical stability, and the impact of AI on demand from Europe and the US. While these remain significant factors shaping the sector's trajectory, the near-term focus for ITC clearly rests on the demerger, dividend, and the upcoming budget.
The valuation of ITC Hotels at 25 times EV/EBITDA is justified by Aggarwal based on its financial strength, strong momentum in the tourism sector, and consistent growth trajectory. The analysis also briefly touches upon the competitive landscape of the quick commerce sector, comparing Swiggy and Zomato. It emphasizes that while Swiggy currently operates at a discount to Zomato, its current position mirrors Zomato’s position a few years back. However, Aggarwal raises concerns about the intense competition and potential regulatory scrutiny facing quick commerce businesses, warning about the potential for slower growth in the future. The comparison highlights the importance of evaluating companies not just on their current performance but also considering the long-term prospects and potential challenges they face. Overall, the analysis emphasizes that while short-term market fluctuations are to be expected, the long-term prospects for ITC, particularly in the context of the ITC Hotels demerger, are largely positive, provided the budget remains favorable.
Source: ITC investors may gain ₹20/stock after hotel demerger if tax bill doesn’t spike: Amnish Aggarwal