ITC Hotels shares listed after demerger from ITC Ltd, faced initial selling pressure. Analysts recommend holding for the long term, citing growth potential.
The listing of ITC Hotels shares followed the demerger of ITC Ltd, a move intended to unlock value for its 37 lakh shareholders. ITC Hotels shares began trading at Rs 188 on the BSE but experienced a 5% lower circuit shortly after, as some ITC shareholders opted to sell their holdings in the newly listed hotel business. Despite this initial dip, analysts suggest investors consider the long-term potential of ITC Hotels given favorable industry conditions.
Initial Market Reaction and Price Discovery
ITC Hotels’ listing price of Rs 188 was approximately 31% lower than the price of around Rs 260 derived during a special price discovery session for ITC shares on January 6. The stock had been valued at around Rs 270 on the BSE indices. The initial drop after listing appears to be from shareholders who preferred not to own the hotel business post-demerger.
Cost of Acquisition for ITC Shareholders
According to company information, the total cost of acquiring 100 shares of ITC Hotels is Rs 54,040 for existing ITC shareholders, reflecting the demerger terms and conditions.
Analysts’ Perspective and Long-Term Outlook
SBI Securities views any short-term pressure on ITC Hotels’ stock price as an opportunity for retail and high-net-worth individuals (HNIs) to add to their long-term portfolios. They cited ITC Hotels’ strong pipeline of key additions and favorable industry conditions as reasons for potential long-term outperformance compared to ITC Ltd. However, the brokerage also acknowledged the possibility of some shareholders, particularly ETFs, selling off their shares which may create pressure on the stock price initially.
Strategic Advantages of the Demerger
The demerger allows ITC to concentrate on its core, high-margin business segments, while ITC Hotels gains the independence to capitalize on growth opportunities in the hospitality sector. This move also positions ITC Hotels to attract strategic investors. Deven Choksey Research also noted the demerger will enhance resource allocation and improve valuation multiples.
Future Growth Prospects
Prashanth Tapse from Mehta Equities advises investors to accumulate ITC Hotels shares on the listing day, noting the significant growth of the luxury hotel sector. He anticipates potential acquisitions and consolidation in the hotel industry over the next couple of years. Tapse also set a target price of Rs 300 for ITC Hotels stock within the next year based on current trading valuations of other hotel stocks around 30 EV/EBITDA.
ITC Hotels Financial Performance
ITC Hotels has shown strong performance metrics with Average Room Rate (ARR) increasing from Rs 7,900 in FY19 to Rs 12,000 in FY24, reflecting a Compound Annual Growth Rate (CAGR) of 8.7%. Revenue Per Available Room (RevPAR) has also grown from Rs 5,200 in FY19 to Rs 8,200 in FY24 with a CAGR growth of 9.5%. In FY24, 52% of the revenue came from room sales, 40% from food and beverage, and the rest from other streams.
Conclusion
The demerger of ITC Hotels is a strategic move designed to unlock shareholder value. While there has been some initial pressure due to shareholders exiting, analysts remain optimistic about the long-term potential, citing favorable industry trends, growth opportunities, and the company’s strong financial performance. Investors should consider the long-term prospects of ITC Hotels despite short term market fluctuations.
Sources: https://upstox.com/news/market-news/stocks/itc-hotels-listing-share-price-n-se-bse-january-29-demerged-business-itc/article-142973/
https://www.financialexpress.com/market/itc-hotels-share-price-live-updates-itc-hotels-to-list-on-nse-bse-check-listing-price-other-details-here-3729539/
https://m.economictimes.com/markets/stocks/news/itc-hotels-shares-fall-5-after-listing-should-you-buy-sell-or-hold/articleshow/117673247.cms