ITC Ltd. received approval from the National Company Law Tribunal (NCLT) for demerging its hotel business. The order, issued by the Kolkata bench of the NCLT on Friday, will become effective the first day of the month following the filing of a certified copy with the Registrar of Companies in West Bengal and meeting other required conditions.
In August 2023, ITC, the cigarettes-to-staples joined together, announced plans to spin off its hotel business into a separate entity. Under this scheme, ITC will retain 40% ownership in ITC Hotels, while shareholders will acquire the remaining 60%, proportionate to their current stake in the parent company.
On Monday, ITC shares rose 2.2%, hitting Rs 514.8, after a recent three-day losing streak, where the stock fell almost 3% from its all-time high. The last positive trading day for ITC was last week when shares touched a record Rs 528.55. Profit-booking in early October led to the downturn, but despite this volatility, HSBC has maintained a “BUY” rating on ITC, raising its target price to Rs 580 per share.
The company’s market capitalization stands at Rs 6,41,639.81 crore. ITC shares have had a third straight bearish trading day, but year-to-date gains remain positive, up nearly 10% on the BSE. Its price-to-equity ratio is 31.34x.
Looking ahead, ITC will demerge its hotel business with a share ratio of 1:10, meaning shareholders will receive one ITC Hotels share for every ten ITC shares they hold. After the demerger, ITC’s stake in the hotels business will be reduced.
ITC has a strong history of rewarding shareholders through bonuses, having issued bonus shares at ratios of 1:2 in 2005 and 2016, and 1:1 in 2010. This bonus trend is expected to continue.
