“Post the demerger news, the ITC stock price have seen profit booking from yesterady’s session, considerign the momentum there may be further profit booking in the near term. Next support is seen around 443 i.e. the recent swing low , ideally prices should hold this level to resume uptrend. 480 is considered as resistance on immediate basis,” said Rajesh Bhosale – Equity Technical and Derivative Analyst, Angel One.

The National Company Law Tribunal’s (NCLT) scheme of arrangement was given in principle permission by the ITC board on Monday to demerge its hotel operations with the incorporation of a wholly owned subsidiary, named ITC Hotels Ltd. The management call set on Thursday, July 27th, would provide more details regarding the arrangement. At the board’s subsequent meeting, which will be held on August 14, the arrangement’s plan will be presented for approval.

ITC share price continues to fall for second day after Hotel Business demerger

The demerger of the hotel business is advantageous for ITC, according to Centrum Broking’s analysis. The research states that while ITC spends roughly 20% of its capex on this area, the hotel industry provided 3.7% of the company’s total sales and 2.3% of its EBIT in FY23. Because of the substantial increase in domestic demand for the hospitality industry, the brokerage anticipates that hotel company revenues would reach ₹38.7 billion with an EBITDA margin of about 34.1%.

“On comparable valuations we assign EV/EBITDA of 25x on FY25E to arrive ₹27/ share value. We retain ‘Buy’ with target price of ₹486,” said the brokerage in its report.

The demerger of the hotel business has not significantly altered Motilal Oswal Financial Services’ estimates, it said. ITC reported a robust EPS rise of around 24% in FY23, and over the next two years, it anticipates an EPS CAGR of roughly 15%. In comparison to other large-cap staples businesses, ITC’s FY24 and FY25 earnings projection is superior. The primary challenges that ITC faced in the past, including an excessively harsh tax regime, interruption from Covid, and inflationary commodity costs, now appear to be fading. The brokerage firm has kept a ‘buy’ rating and a ₹535 target price.

“At 18x FY25E EV/EBITDA, the back of the envelope calculation indicates a value of ₹16/share for ITC’s hotel business,” said the brokerage.

Hotel business contributed less than 5% of ITC revenues and EBIT over the past ten years, according to global brokerage Jefferies. It did, however, formerly make up more than 20% of ITC’s capital expenditures. As of March 2023, hotels had a 22% proportion of the segmental capital employed, which also reflects this.

Capex for the hotel industry has decreased as a result of ITC’s “asset-right” approach. Profitability has also significantly increased at the same period. After experiencing negative cash flows overall, the company had a positive FCF for the first time in nearly 15 years. This would make it possible for ITC to consider a different structure for the hotel industry.

“With improving profitability, we shifted to EV/ EBITDA valuation for the hotel business vs. EV/ Invested capital earlier. We applied 18x EV/EBITDA multiple,pegging ITC hotels at a 20% discount to our fair value multiple for the leader, Indian Hotels at 23x. Accordingly, we raised ITC’s price target slightly to ₹530,” said the brokerage in its report.

ITC board gives in-principle nod for demerger of hotels business; stock falls over 3%

Updated: 25 Jul 2023, 11:32 AM IST