ITC Hotels Demerger: Stock price calculation, F&O entry to MSCI index inclusion – 6 key things to know

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ITC Hotels Demerger: ITC share price traded marginally higher on Wednesday, January 1, as today is the effective date for the demerger of ITC Hotels business. The ITC Hotels demerger record date is January 6 and the ITC shares will turn ex-date for the demerger on that day.

ITC Hotels demerger ratio is 1:10, which means 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.

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

As the ITC Hotels demerger has been effective today, here are other key things to know about the demerger:

ITC Hotels Stock Price; ITC Share Price Valuation

ITC Hotels share price will be calculated based on the difference between the closing prices of ITC shares on January 3, 2025, and open price of ITC discovered during the SPOS (special pre-open session) on January 6, 2025, according to Abhilash Pagaria, Head, Nuvama Alternative & Quantitative Research.

Also Read | ITC Hotels demerger: Effective date tomorrow. Record date, ratio, other details

ITC share price is expected to be adjusted by ₹22-25 on January 6, reflecting its 40% stake in the hotel business and incorporating a 20% holding discount.

According to Nuvama’s FMCG team, led by Abneesh Roy, the adjustment is expected to be ₹18 per share.

“In addition, based on my discussions with multiple market participants, I anticipate that the initial market price for ITC Hotels shares could range between ₹150-175 per share,” said Abhilash Pagaria.

SBI Securities expects ITC Hotels stock to list in the range of ₹113 to ₹170 per share, assuming that ITC Hotels will list at an EV/EBITDA multiple of 20.0x – 30.0x. It believes post demerger, ITC share’s medium term fair value to be ₹525 – 550.

Effect on NSE, BSE Indices

ITC Hotels shares will be maintained in all the NSE and BSE Indices at a constant price i.e., the discovered price during the special pre-open session on January 6. However, ITC Hotels stock will be dropped from all the NSE and BSE indices at the last traded price which is effective at the open of ITC Hotels listing date + 3 business days.

Also Read | Stock Check: ITC demerger sparks investor interest; what’s next for the firm?

If the stock hits circuit limits, the exclusion will be postponed by two trading days each time. For instance: if ITC Hotels lists on February 10, 2025 then stock will compulsorily be deleted on February 13, 2025, Nuvama explained.

Nifty 50, Sensex Indices Inclusion

ITC Hotels will be 51st constituent in Nifty 50 and 31st constituent in Sensex and daily will be considered in weight calculations of Index.

“However as it is not traded live so its market-cap and price will remain constant until it lists. Post its listing for three trading days, live market-cap will be considered to calculate weight in all the indices,” Nuvama said.

Implementation in the MSCI Indexes

Based on estimates, ITC Hotels stock is expected to meet the criteria for inclusion in the MSCI Global Small Cap Indexes. As a result, ITC Ltd. will remain part of the Standard Index. However, following the listing of ITC Hotels, the hotel business will be moved to the Small Cap Index and will no longer be part of the Standard Index, according to Nuvama.

MSCI intends to apply a Price Adjustment Factor (PAF) to the market price of ITC on January 06 to reflect the spin-off. Since ITC Hotels is not expected to start trading on the ex-date, MSCI intends to temporarily add a detached security ITC (DET) to the MSCI Global Standard Indexes as of close of January 06, 2025 (effective January 07, 2025).

Also Read | ITC fixes January 6 as record date for demerger of its hotels business

The price of ITC (DET) will be calculated by taking the difference between the closing price of ITC on January 03, 2025 and January 06, 2025. MSCI intends to maintain ITC (DET) at this price until ITC Hotels begins trading. When ITC Hotels starts trading, MSCI intends to apply a PAF to the market price of ITC (DET) based on terms of spin-off.

“Thereafter, MSCI intends to delete ITC (DET) from the MSCI Global Standard Indexes as of the close of the first trading day of ITC Hotels using the closing market price of ITC Hotels. Simultaneously, MSCI intends to add ITC Hotels to the MSCI Global Small Cap Indexes as of the close of its first trading day,” Nuvama analyst said.

Implementation in the FTSE Index

As per the current methodology, the ITC Hotels stock will be excluded if it does not list within 20 working days after the Record Date of the demerger.

“Based on my general understanding, there should not be any exclusion of ITC Hotels,” Pagaria said.

Also Read | ITC sets January 1, 2025 as effective date for demerger of hotel business

F&O Inclusion

As per the current methodology, ITC Hotels stock needs to have at least a six month trading history to even qualify for derivative inclusion. Hence, ITC Hotels inclusion in the Futures & Options (F&O) segment is unlikely.

After fulfilling all the quantitative qualification criteria for the derivative inclusion, ITC Hotels shares will need SEBI approval, which is quite subjective, Nuvama said.

At 2:40 PM, ITC shares were trading 0.57% higher at ₹486.40 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.

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