The new year kicked off with significant developments for ITC Hotels, as its demerger became effective on January 1, 2025. The record date for this milestone is set for January 6, 2025, marking the day the ITC stock goes ex-demerger. But what does this mean for shareholders? How will the demerger affect ITC’s share price and what will it bring to the table for everyone involved? Let’s break it down step-by-step.
What Does the Demerger Mean for ITC Shareholders?
If you’re an existing shareholder of ITC, this demerger brings both clarity and opportunity. For every 10 shares of ITC you own, you will receive 1 share of ITC Hotels. However, to qualify for ITC Hotels shares, you must hold ITC shares by January 3, 2025. Investors purchasing ITC shares on or after the ex-date, January 6, 2025, will not be eligible to receive ITC Hotels shares.
The demerger process includes a special pre-open session (SPOS) on January 6, which will establish the intrinsic value of ITC Hotels based on market dynamics.
When Will ITC Hotels Shares Reflect in Your Portfolio?
Despite the demerger being effective immediately, ITC Hotels shares will not appear in your portfolio right away. Approval from stock exchanges is still pending, and until this is granted, ITC Hotels will remain a dormant stock within indices like the Nifty 50 and BSE Sensex.
Once trading begins for ITC Hotels, it will take three trading days for the stock to be removed from indices. However, if the stock hits circuit limits on the first two days, its exclusion will be delayed by another three days.
Source: Financial Express
The Strategic Rationale Behind the Demerger
ITC’s decision to demerge its hotel business into a separate entity, ITC Hotels, is a strategic move aimed at unlocking value for shareholders. ITC will retain a 40% stake in the new entity, ensuring strategic support and synergies with its hotel operations, while shareholders will directly own the remaining 60%. This approach avoids a vertical division and positions ITC Hotels for future growth.
ITC’s Financial Performance and Hotel Business Growth
In the second quarter of FY25, ITC reported a consolidated net profit of Rs 4,993 crore, marking a 2% year-on-year growth. Revenue from sales of products and services grew 16% to Rs 20,360 crore. The hotel business contributed significantly, with revenue rising 12% year-on-year to Rs 728 crore in Q2 FY25, and the PBTrising marginally to Rs 151 crore from Rs 126 crore in the same period last year.
ITC’s financial health remains robust, with a 5-year P/E ratio of 29, near its median P/E of 23, and an almost debt-free balance sheet.
Market and Institutional Holdings Trends
Institutional holdings have shown mixed trends:
- Foreign Institutional Investors (FIIs): Decreased their stake from 42.68% in September 2022 to 40.53% in September 2024.
- Domestic Institutional Investors (DIIs): Increased their holdings from 42.38% to 44.59% over the same period.
Source: Financial Express
ITC’s Stock Performance vs. Nifty 50
Over the past year, ITC’s stock has risen 4.5%, with a year-to-date increase of 1.9%. Over six months, it has delivered a 12.5% return. In comparison, the Nifty 50 has grown 11% in the past year and over 9% year-to-date, while showing a slight decline of 0.5% in the last six months.
ITC Hotels’ Stock Price
The share price of ITC Hotels will be determined by the difference between ITC’s closing price on January 3 and its open price during the SPOS on January 6. ITC’s share price is expected to be adjusted by Rs 22-25 on January 6, reflecting its 40% stake in the hotel business and a 20% holding discount.
Inclusion in Stock Indices and Future Prospects
- Nifty 50 and Sensex: ITC Hotels will temporarily appear as the 51st constituent of the Nifty 50 and the 31st in the Sensex, with its weight calculated based on the discovered price during the SPOS.
- MSCI Indexes: ITC Hotels is projected to qualify for the MSCI Global Small Cap Indexes, while ITC Ltd. will remain part of the Standard Index. MSCI plans to apply a Price Adjustment Factor (PAF) to ITC’s price on January 6 to reflect the spin-off.
- FTSE Index: If ITC Hotels does not list within 20 working days after the record date, it will be excluded from the FTSE Index.
- Futures and Options (F&O): ITC Hotels will require at least six months of trading history and SEBI approval to qualify for inclusion in the F&O segment.
Source: Mint
Market Reactions and Key Dates to Watch
On January 1, ITC’s share price traded marginally higher, reflecting the excitement surrounding the demerger. A special trading session on January 6 will determine ITC Hotels’ fair price. The stock is expected to be listed within 60 days of receiving the NCLT order, dated December 16, 2024.
Conclusion
The ITC Hotels demerger is a landmark event, signaling the company’s strategic shift to unlock value for shareholders while allowing its hotel business to operate independently. For shareholders, the immediate benefits include receiving ITC Hotels shares and the potential for enhanced value realization in both ITC and ITC Hotels stocks. However, the true impact will unfold as ITC Hotels begins trading, and its market dynamics become clearer.
For ITC as a whole, this demerger aligns with its broader vision of focusing on core business segments while providing strategic backing to its spin-off entities. ITC Hotels now has the autonomy to chart its own growth path, backed by ITC’s continued support. As investors await the stock’s listing and market performance, the demerger stands as a testament to ITC’s commitment to creating long-term value in an evolving corporate landscape.
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I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.
