On January 6, 2025, ITC Hotels will officially spin off from its parent company, ITC Ltd, marking a significant transition for both entities. The demerger has garnered considerable attention from investors as they anticipate the listing of ITC Hotels shares on the stock exchanges.
Key Details of the Demerger
Under the demerger scheme, shareholders of ITC Ltd will receive one equity share of ITC Hotels for every ten shares they hold in ITC. After the demerger, ITC will retain a 40% stake in the new entity, while the remaining 60% will be distributed among existing shareholders proportionate to their holdings.
Financial Overview
ITC Hotels has shown impressive growth over the past few years. Historically, it consumed about 20% of ITC’s capital but contributed only 3%-4% of overall operating profits. This prompted a strategic shift towards an asset-light model, where ITC Hotels began managing properties instead of owning them. Currently, 55% of its hotel inventory operates under this managed model, with plans to increase this to 65% by 2030.
Post-demerger, ITC Hotels is expected to start with cash reserves of ₹1,500 crore and zero debt. The company plans to invest 8-10% of its sales in capital improvements and renovations.
Expected Listing Prices
Market analysts have varied predictions regarding the initial listing price for ITC Hotels:
- Nomura expects the shares to list in the range of ₹200 to ₹300.
- Nuvama Institutional Equities predicts a more conservative range of ₹150 to ₹175.
The actual price will be determined during a special pre-open session scheduled from 9:00 AM to 9:45 AM on January 6, with normal trading resuming at 10:00 AM.
Pros and Cons of the Demerger
Pros:
- Enhanced Valuation: The separation allows ITC Hotels to attract a premium valuation compared to its previous status under ITC Ltd.
- Growth Potential: The hotel business plans significant expansion, including adding new rooms and properties, which could boost revenue.
- Foreign Investment Opportunities: As a standalone entity, ITC Hotels can attract 100% foreign direct investment, opening doors for international partnerships.
Cons:
- Market Volatility: The initial trading period may see fluctuations as investors react to the new entity’s valuation and market positioning.
- Dependency on Hospitality Sector: The success of ITC Hotels will heavily depend on the recovery and growth of the hospitality industry post-pandemic.
Trading Restrictions
It’s important for investors to note that they will not be able to trade the dummy version of ITC Hotels stock after the special pre-open session. Trading can only commence once the shares officially list on the exchanges.
Conclusion
With the demerger taking effect today, investors are keenly watching how this transition will affect both ITC Ltd and ITC Hotels. As trading begins and prices are established, it will be crucial for investors to stay informed about market movements and potential impacts on their portfolios.
Disclaimer: The information provided in this article is based on various sources and may not be independently verified for accuracy. Investors are advised to conduct their own research or consult with certified financial advisors before making investment decisions.
