ITC’s board gave an in-principle approval for the demerger of the hotels business; Brokerages cheer for ITC hotels demerger, know why
ITC Share Price Today: ITC Shares fell as much as 3.3 per cent on Tuesday, extending a slide from the previous session, as investors balked at the company’s plans to retain a 40 per cent stake in its hotels business after spinning it off.
Meanwhile, on Monday the decision to not do a full split of the newly carved hotel business came as a negative surprise for market participants, leading to a 4 percent slump in the stock, but brokerages cheered for it.
Demerger of ITC Hotels
ITC’s board on Monday gave an in-principle approval for the demerger of the hotels business
As per the scheme of arrangement, the company will hold a stake of close to 40 percent in the new entity, while the remaining 60 percent will be held by the company’s shareholders, proportionate to their shareholding in the company.
Read More: ITC Approves Demerger Of Hotels Business, Incorporates ITC Hotels Ltd
Here’s How Analysts See The Demerger
Global research and broking firm Morgan Stanley saw the demerger of the hotels business as a clear positive for ITC. According to the firm, it should allay concerns over capital allocation and use of cigarettes business cashflows to develop other businesses over the medium to long term. Morgan Stanley also believes that the decision can help ITC’s hotels business in charting its own growth path. The brokerage has an ‘overweight’ stance on ITC, with a price target of Rs 474, which includes Rs 17 for hotels.
Goldman Sachs also has a positive view for the demerger as it believes hotels was an asset-heavy business for ITC, contributing just 2 percent to its EBIT, but taking up 20 percent of the capital employed. The firm has ascribed an SOTP (sum of the parts) of Rs 12 for hotels out of its price target of Rs 470 for ITC.
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Jefferies also sees a case for ITC to levy a brand loyalty for the hotels business, adding that there could be supply pressure in the hotels business post listing. Once the hotels business is separately listed, Jefferies sees the case for a holding company discount. It is valuing the hotels business at Rs 15 per share.
Nomura wrote in its note that the management control over the hotels business is a positive. It is now expecting surplus cash and higher dividend payout profile going forward.
