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The Indian business landscape is abuzz with anticipation surrounding the impending demerger of ITC's hotel business, a move that various financial analysts predict will be a win-win scenario for all involved. The demerger is expected to take place in February, marking a significant shift in ITC's corporate structure and potentially reshaping the Indian hospitality sector. Multiple brokerage firms have released their analyses and predictions regarding the subsequent stock performance of both ITC and the newly independent ITC Hotels. The projected impact on share prices, and the differing perspectives presented by ICICIdirect, Systematix, Nuvama, and Antique Stock broking, highlight the complexity and potential volatility inherent in such a major corporate restructuring.
ICICIdirect, a prominent brokerage firm, anticipates a positive outcome for shareholders. Their report suggests a target price of Rs 195 for ITC Hotels shares, representing a potential upside of 15-30 percent over the anticipated listing price of Rs 150-170. This bullish outlook stems from their belief that the demerger will allow ITC to focus on its core businesses, leading to improved earnings and return profiles in the long run. Furthermore, the report highlights that the demerged hotel business will maintain its asset-right strategy, aiming for substantial revenue and EBITDA growth of 14 percent and 18 percent respectively, between FY24 and FY27. They also acknowledge the continued institutional support that ITC will provide to the hotels division, in terms of brand recognition, governance, and access to synergies. The report confidently concludes with a 'Buy' rating for ITC shares, valuing them at Rs 555.
Systematix, another influential brokerage firm, offers a more conservative projection. While they estimate the value of ITC Hotels stock at Rs 150 per share based on their financial model, they predict a more modest adjustment of Rs 5 per share to ITC’s stock price following the record date (January 6th). They maintain a 'HOLD' rating on ITC stock with a target price of Rs 500, pending further disclosures from the company. This cautious stance is partially due to the inherent uncertainties associated with new listings and the potential for market fluctuations to impact the initial price. They note that the current stock trades at a P/E ratio of 26 times/23 times for FY26E/FY27E EPS, indicating a level of valuation that warrants careful consideration.
Nuvama’s assessment differs slightly, forecasting a larger adjustment of Rs 18 per share for ITC stock. Their analysis aligns more closely with ICICIdirect’s optimism regarding the initial market price of ITC Hotels shares, predicting a range between Rs 150 and Rs 175. This suggests that Nuvama also expects strong initial demand for ITC Hotels shares upon its listing. The difference between the various firms' projections highlights the inherent uncertainty and complexity in predicting stock market behaviour, even following a major corporate event such as a demerger.
Antique Stock Broking adds to the mix with its own valuation of ITC at Rs 563, demonstrating a slightly higher estimate than other firms. The divergence in price targets among these brokerages underscores the subjective nature of financial forecasting, even when based on the same underlying information. It highlights the range of possible outcomes and the importance of conducting thorough due diligence before making investment decisions. The demerger of ITC Hotels presents a complex scenario with both opportunities and risks, and investors should carefully consider the diverse perspectives offered by different financial analysts.
The demerger itself is a significant strategic move by ITC. By separating its hotel business, ITC aims to unlock value for its shareholders and allow each entity to focus on its core competencies. The hotel business, as a standalone entity, will have greater autonomy to pursue its own growth strategies. This could lead to improved operational efficiency and potentially attract new investors specifically interested in the hospitality sector. Conversely, the remaining ITC entity will be freed from the complexities of managing a large and diverse hotel portfolio, enabling it to concentrate on its core FMCG and other businesses. The success of the demerger will depend on several factors, including the market’s reception of the newly listed ITC Hotels, the management teams of both entities, and the overall economic climate.
The anticipated institutional support from ITC to ITC Hotels, in the form of brand leverage, governance frameworks, and operational synergies, suggests a structured approach to the separation. The demerger plan also incorporates mechanisms for shareholders to participate in the newly created entity. The 60% share distribution to existing ITC shareholders ensures wide participation and potentially broadens the investor base for ITC Hotels. However, the success of this approach depends on various factors, including the overall market sentiment towards the hospitality sector and the long-term strategic vision of both companies.
Ultimately, the coming months will be crucial in determining the success of the ITC Hotels demerger. The market’s reaction to the listing price, the subsequent trading performance of both ITC and ITC Hotels, and the long-term growth trajectories of both entities will serve as critical indicators. While several brokerage firms offer optimistic forecasts, it's crucial for investors to remain cautious and to consider the inherent risks involved in any investment decision. The information provided by various brokerage houses should be viewed as valuable input, but not as definitive predictions of future market behaviour.
Source: ITC shares, ITC Hotels: Biz listing likely in February; here's target prices