ITC Hotels demerger: Effective date tomorrow. Record date, price, ratio, funding, cash infusion, other details

ITC share price will remain in focus this week as the demerger of its ITC Hotels will come into effect from tomorrow. The cigarette-to-hotel conglomerate has fixed the Effective Date or the Appointed Date for the demerger of its hotels business as on January 1, 2025. The Record Date for ITC shareholders is January 6.

As per the demerger scheme, ITC Hotels will now be a separate listed entity from its parent ITC Ltd. Here are key details of ITC Hotels demerger: 

ITC Hotels Demerger Key Details

ITC Hotels Demerger Record Date: ITC Hotels demerger record date is January 6. This means ITC shareholders whose names will appear in the company’s books as on January 6 record date, will get one share of ITC Hotels for every 10 ITC shares held.

ITC Hotels Demerger Ratio: ITC Hotels demerger ratio is 1:10, which means 1 share of ITC Hotels for every 10 shares of ITC Ltd.

The company said ITC Hotels will issue equity shares directly to the shareholders of ITC in a manner that about 60% stake is held directly by ITC shareholders proportionate to their shareholding in ITC and remaining about 40% stake to continue with ITC.

Overall, existing ITC shareholders will hold 100% of ITC Hotels, i.e. about 60% directly and balance of about 40% through their shareholding in ITC.

ITC Hotels Demerger Cash Infusion: ITC said it will transfer cash and cash equivalent worth ₹1,500 crore to ITC Hotels for growth and contingency requirements.

ITC Hotels Demerger Price: Stock exchanges BSE and NSE will hold a special trading session on the record date January 6 to discover the fair price of ITC Hotels shares. The stock will be listed within 60 days from date of receipt of NCLT Order, i.e. December 16, 2024.

ITC Hotels Share Price Estimates

The average EV/EBITDA multiple of ITC Hotels’ industry peers, i.e. Indian Hotels and EIH Ltd, is 25.0x.

Assuming that ITC Hotels will list at an EV/EBITDA multiple of 20.0x – 30.0x, the share price of ITC Hotels Ltd is expected to list in the range of ₹113 to ₹170 per share, according to the calculations done by SBI Securities.

“Given the attractive growth potential for the domestic tourism industry and strong company financials, ITC Hotels has a long runway to capture the growth opportunities in the tourism industry. Investors can participate in the growth story of ITC’s hotel business by purchasing a minimum of 10 ITC shares on or before 3 January, 2025,” SBI Securities said.

For ITC shareholders, post demerger and listing of the ITC Hotels, there will be no material value addition as the price of ITC shares will get adjusted taking into account the holding company discount.

“Post listing of the ITC Hotels Ltd, investors will get an opportunity to participate directly in the growth story of ITC’s hotel business. Looking at the robust key addition pipeline for ITC Hotels and strong industry tailwinds, we believe ITC Hotels Ltd has potential to outperform ITC Ltd over a medium to long term period,” said the brokerage firm.

However, in the short term, there is a possibility that few shareholders (especially ETFs) may have to forcefully exit ITC Hotels Ltd and this can create pressure on the stock price.

SBI Securities believes any short term pressure on the ITC Hotels stock price will be a good opportunity for retail/ HNI shareholders to accumulate quality business in their long term portfolio.

“Meanwhile, post demerger, investors can also continue to hold shares of ITC Ltd for long term given its diversified FMCG portfolio and steady growth in its core businesses (Cigarette & FMCG). Also, the demerger of its asset heavy hotels business will result in improved return ratios and cash flows. We believe, post demerger, ITC Ltd’s medium term fair value to be ₹525-550,” said the brokerage firm.

About ITC Hotels

ITC Hotels is one of the largest hotel companies with 140 hotels and ~13,000 operating keys as of October 2024. The company targets to grow its portfolio to 200+ hotels and 18,000+ keys by 2030. Around 35% of the hotel portfolio is owned by ITC Hotels and the balance is managed (including franchise model).

The ARR and RevPAR of its owned hotels has grown 20% and 18% YoY respectively in FY24 with occupancy level of 69%. The return ratios are healthy with RoCE of ~20%. It has a net cash surplus with negligible debt on books, thus providing healthy growth opportunity going ahead.

At 12:15 PM, ITC shares were trading 0.44% lower at ₹479.20 apiece on the BSE. 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.