ITC Hotels, following its approved demerger from its parent company ITC, is poised to make a significant impact on share prices and valuation. The demerger aims to unlock value for shareholders and enhance the capital allocation of the conglomerate. While the demerged stock is set to be listed in November 2024, the valuation considerations and share entitlement ratio have drawn the market’s attention.
Share Entitlement and Valuation
Under the demerger plan, ITC shareholders will receive one share of ITC Hotels for every ten shares of ITC they hold. This move is expected to foster value and capital allocation improvements for both entities.
To estimate the potential share price of ITC Hotels, experts have considered the share entitlement ratio, market value, and valuation multiples. Despite not using traditional valuation metrics due to the unique circumstances of the demerger, experts predict a significant impact on the price per share of ITC Hotels.
The estimated valuation of ITC Hotels is pegged at around Rs 20,000-24,000 crore based on an 18-20x EV/EBITDA estimate in FY25. With an assumed 20x multiple, ITC Hotels’ valuation could reach Rs 24,000 crore, translating to Rs 115 per share, according to JM Financial. Emkay projects a valuation of Rs 22,500 crore, approximately Rs 108 per share.
The calculated share price of ITC Hotels might be around Rs 96, assuming a valuation of Rs 20,000 crore and a total share capital of about 208 crore shares.
Market Forces and Future Trading
The final share price of ITC Hotels will be influenced by market dynamics. Similar to the case of Jio Financial Services, which recently demerged from Reliance Industries, stock exchanges could hold a special session to determine the fair price of ITC Hotels. As ITC is part of Nifty50, a special trading session could be conducted to establish the price of ITC Hotels.
ITC Hotels: An Overview
ITC Hotels, with over 11,500 rooms and revenue of about Rs 2,700 crore in FY23, stands as the second-largest hotel chain among listed peers, trailing Indian Hotels (IHCL), which owns the renowned Taj group of hotels. Compared to IHCL’s 21,000 rooms and annual revenue of Rs 5,800 crore, ITC Hotels boasts a significant presence.
As ITC Hotels demerges from the conglomerate, its asset-heavy hotel business is expected to enhance ITC’s return profile in the coming years. This move is seen as part of ITC’s broader strategy to unlock value and optimize its business segments.
The demerger of ITC Hotels from ITC is poised to have a considerable impact on share prices and valuations. Market dynamics, share entitlement ratio, and valuation multiples will all play a role in determining the share price of ITC Hotels upon its listing. The move represents a significant step towards unlocking value for shareholders and optimizing the capital allocation of the conglomerate.
Note: The information provided here is based on available data and should not be considered as financial advice. Always refer to authoritative sources and consult with financial professionals before making investment decisions.