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The Indian conglomerate ITC experienced a dip in its share price on Friday, exceeding one percent, preceding the record date for its upcoming ITC Hotels demerger. This significant event, scheduled for January 6th, will see ITC shareholders who are registered on that date receive shares in the newly independent ITC Hotels. The demerger ratio is set at 1:10, meaning for every ten shares of ITC held, shareholders will receive one share of ITC Hotels. This creates a crucial deadline for investors looking to participate in the demerger – the last day to buy ITC shares to be eligible for ITC Hotels shares was January 5th. The stock exchanges, BSE and NSE, will conduct a special trading session on January 6th to determine the fair market value of the newly listed ITC Hotels shares. The listing of ITC Hotels shares on the stock exchange is anticipated within 60 days of receiving the necessary National Company Law Tribunal (NCLT) order, expected to be December 16th, 2024. The effective date of the demerger is January 1st, 2025.
Despite the recent share price decline, several financial analysts view this as a potentially lucrative buying opportunity for long-term investors. Akriti Mehrotra, a Research Analyst at StoxBox, suggests that the drop presents a favorable entry point for those with a long-term investment strategy. Mehrotra highlights the robust performance anticipated for ITC's core cigarette business, driven by its dominant market share and ability to adjust pricing. Furthermore, the company's ongoing efforts to enhance margins within its non-cigarette Fast-Moving Consumer Goods (FMCG) segment are expected to contribute to a notable increase in overall profitability in the near future. The demerger itself is anticipated to significantly improve ITC's financial standing. By separating the hotel business, ITC will streamline its operations, focusing on its core strengths in cigarettes and FMCG. This shift towards a more asset-light structure is projected to improve capital efficiency and boost returns. While the share price is predicted to adjust downward by approximately Rs. 20-22, Mehrotra believes that the company's focus on profitability will lead to attractive long-term growth.
Centrum Broking shares a similar positive outlook, emphasizing that the demerger is strategically sound, enabling ITC to maintain its involvement in the hospitality sector with an improved operational structure. The broker expects considerable growth in the hotel business revenue, projecting ₹45.7 billion in revenue for fiscal year 2027, with a robust EBITDA margin of approximately 35%, fueled by strong domestic demand. Using their financial models, Centrum Broking estimates a value of ₹36 per share for ITC Hotels, considering factors like market comparisons and ownership discounts. This valuation is factored into their analysis of ITC's overall share price. Their overall assessment is bullish, and they maintain a 'Buy' recommendation for ITC shares, with a price target of ₹583. The calculation of the ITC Hotels share price will involve comparing ITC's closing price on January 3rd, 2025, with its opening price during the special pre-open session (SPOS) on January 6th, 2025. Analysts expect a share price adjustment of roughly ₹22-25 for ITC, accounting for its 40% stake in the hotel business and a typical holding discount.
The demerger scheme ensures that ITC shareholders retain complete ownership of ITC Hotels. Approximately 60% will be held directly by individual shareholders, proportionally to their ITC holdings, while the remaining 40% will be held by ITC itself. This structure effectively means that existing ITC shareholders will maintain complete control over ITC Hotels through a combination of direct and indirect ownership. The midday share price of ITC on the Bombay Stock Exchange (BSE) reflected the market's reaction to the upcoming demerger, with shares trading 1.39% lower at ₹482.45. This illustrates the dynamic nature of the market in response to major corporate events and the ongoing uncertainty surrounding the final share valuation of ITC Hotels following its demerger. The market is clearly factoring in the potential impact of the demerger, and this volatility highlights the risks and rewards associated with making investment decisions surrounding such events. The subsequent weeks will be crucial in observing how the market responds to the final details of the demerger and the official listing of ITC Hotels.
Source: ITC share price dips ahead of ITC Hotels demerger record date. Should you buy?