ITC sought to allay investors’ concerns over hotels business demerger, highlighting plans to improve the company’s RoCE by up to 20%, and ensure that new entity ITC Hotels has a well-capitalised, debt-free balance sheet. The demerger is set to reward existing shareholders, instead of new ones, by allocating 60% of the shareholding to current stockholders, the company said during an analyst call. Analysts cheered this move, maintaining their positive calls with many target prices over Rs 500 apiece.
ITC Hotels shareholding
ITC shareholders will receive 60% direct stake in the new demerged entity while ITC retains a 40% stake. This will be allocated in proportion to their shareholding entity. For example, if an investor owns 10% stake in ITC, their shareholding in ITC Hotels will be 6% and an additional 4% via their stake in ITC.
The firm’s focus will also be on remaining asset-light, which would entail less capital requirements. As a result, the capex outlay will be similar to the depreciation amount. ITC and the new entity would have a royalty arrangement in place for usage of brand name which would be based on industry benchmarks.
ITC Stock Outlook
Emkay and Nuvama maintain their ‘Buy’ calls with target prices over Rs 500 apiece. Since the current demerger unlocked value for shareholders, Nuvama gave ITC shares a target price of Rs 560 apiece. On an SoTP-based target price, Emkay issued a target price of Rs 525 per equity share. The brokerage valued the cigarettes division at Rs 283 apiece, 54% of the target price; other FMCG was valued at Rs 120 per share, 23% of the target price. Prabhudas Lilladher increased its target price from Rs 455 to Rs 478, retaining its ‘Accumulate’ call.
ITC shares are facing a volatile day of trade, with the share price nearly flat. The scrip hit a fresh 52-week high earlier this month, at Rs 499.7 apiece, a hair’s breadth away from crossing the historical Rs 500 mark.