In a significant corporate restructuring move, ITC hotel business has embarked on its independent journey, marking a new chapter in India’s hospitality sector. The strategic demerger empowers shareholders with direct access to the hospitality business while allowing the parent company to sharpen its focus on more profitable divisions. The spin-off, designed to unlock shareholder value, saw ITC’s share price settle at Rs 455 in Monday’s special pre-open session, reflecting a 5.6 percent adjustment from its previous close.
The demerger, which has been closely watched by market participants, follows a carefully crafted 1:10 ratio strategy. Under this arrangement, investors holding ten ITC shares as of January 6, 2025, will receive one share of the newly minted ITC Hotels. This strategic move maintains ITC’s significant influence through a 40 percent stake in the demerged entity, while existing shareholders will collectively own the remaining 60 percent, proportionate to their current holdings.
Market expectations for ITC Hotels‘ listing have sparked considerable interest among analysts. While initial estimates from various brokerages projected a conservative range of Rs 150-175 per share, Japanese financial powerhouse Nomura has taken a more bullish stance. Their analysis suggests a potential listing range of Rs 200-300 per share, implying a substantial market capitalization between Rs 42,500 crore and Rs 62,200 crore a valuation that surpasses most market expectations.
Trading mechanics for the newly separated entity present some unique features. Both NSE and BSE will maintain ITC Hotels in their indices at a constant price during the listing day and for three subsequent business days. Nuvama’s analysis suggests that ITC’s share price could see an adjustment of Rs 22-25, factoring in both its 40% stake in the hotel business and a 20% holding discount.
Why it happened?
The demerger addresses long-standing investor concerns about capital efficiency within the ITC conglomerate. Despite generating substantial revenues, the hotel business had been a notable drag on the company’s overall returns, consuming approximately 20% of ITC’s capital while contributing only 3-4% to the conglomerate’s profits. This stark contrast, particularly when compared to the high-performing tobacco division, led to growing pressure from shareholders for a strategic separation.
Anticipating the need for greater efficiency, ITC had strategically shifted to an “asset-right” model in 2018, focusing on managing properties rather than owning them. This approach has proven successful, with 55% of ITC’s hotel inventory now operating under this model, and plans to reach 65% by 2030. The combination of this capital-efficient strategy and the demerger positions ITC Hotels for potentially stronger returns in the future.
