ITC Hotels Unit Stock Valued at ₹15-27 Range; Analysts Weigh in on ITC Demerger
About ITC Hotels
ITC Hotels is one of India’s leading hotel chains, with over 115 hotels in over 80 destinations across India and the Middle East. The hotel group operates under six distinct brands: WelcomHeritage, ITC Hotels, ITC WelcomHotel, Fortune Select Hotels, ITC Gardenia, and ITC Rajputana.
ITC Hotels was founded in 1975 with the opening of the ITC Maurya in New Delhi. The hotel group has since grown to become one of the most respected brands in the Indian hospitality industry. ITC Hotels’ success is due to a number of factors, including its commitment to quality, its focus on customer service, and its ability to adapt to the changing needs of the market.
For example, ITC Hotels recently launched its new Storii brand, which is a collection of boutique hotels that offer a unique and personalized experience. The Storii hotels are located in some of India’s most popular tourist destinations, and they offer a variety of amenities and activities that are designed to appeal to a younger generation of travelers.
ITC Limited, a prominent Indian conglomerate, has made headlines with its decision to demerge its hotels division into a new firm named ITC Hotels Ltd. After the demerger announcement, brokerages have provided forecasts on the share price of ITC Hotels, which is expected to range between ₹15 to ₹27. The demerger will result in ITC holding a 40% ownership stake in the new entity, while shareholders will directly control the remaining 60%.
Market Performance and Analyst Predictions:
On Tuesday’s trading session, ITC’s stock price experienced a downturn for the second consecutive session, opening at an intraday high of ₹469.95 apiece on the Bombay Stock Exchange (BSE). Some analysts believe that this decline is due to profit booking following the demerger news. They expect further profit booking in the near term, with the next support level seen around ₹443 (recent swing low). For the stock to resume its uptrend, it is hoped that prices will hold this support level. Additionally, the immediate resistance is noted at ₹480.
Implications of the ITC Hotel Demerger:
The National Company Law Tribunal (NCLT) has given in-principle permission for the demerger scheme of arrangement. The ITC board approved the incorporation of a wholly owned subsidiary named ITC Hotels Ltd to facilitate the demerger. A management call is scheduled for July 27th to provide more details about the arrangement, and the plan will be presented for approval at a subsequent board meeting on August 14.
Analysts Views
According to analysts at Centrum Broking, the demerger will benefit ITC. Despite accounting for 20% of ITC’s capital expenditure, the hotel business only contributed 3.7% to overall sales and 2.3% to EBIT in FY23. The brokerage predicts that the hotel company’s revenue will reach ₹38.7 billion with an EBITDA margin of approximately 34.1%. Using comparable valuations, they assign an EV/EBITDA of 25x on FY25E, which results in a share value of ₹27. Centrum Broking maintains a ‘Buy’ rating with a target price of ₹486.
Motilal Oswal Financial Services has stated that the demerger has not had a significant impact on their estimates. They predict a strong EPS growth of approximately 15% in the next two years. The brokerage maintains a ‘Buy’ rating with a target price of ₹535. Their valuation suggests that the hotel business would be valued at ₹16 per share, using an 18x FY25E EV/EBITDA multiple.
According to Jefferies, a worldwide brokerage, ITC Hotels have historically contributed less than 5% of ITC’s revenues and EBIT over the past decade, despite representing 22% of the segmental capital employed as of March 2023. To value the hotel business, they switched to an EV/EBITDA valuation and used an 18x multiple, which resulted in ITC Hotels being priced at a 20% discount compared to their fair value multiple for the leader, Indian Hotels. As a result, they have slightly increased ITC’s price target to ₹530.
Conclusion:
The demerger of ITC’s hotel division into ITC Hotels Ltd is under close scrutiny by analysts and investors. Forecasts predict that ITC Hotels’ share price will range from ₹15 to ₹27 post-demerger, with potential benefits for ITC Limited from this strategic move. Investors are eagerly awaiting further developments and announcements to gauge the demerger’s impact on both companies’ financial performance and stock prices.