IT's a game-changer! ITC Hotels has taken a bold step towards unlocking its true potential by announcing its hotels arm demerger. The move came with great news for investors, as the company reassured them through an analyst call, creating a wave of positive sentiment among brokerages.
Addressing investors' concerns, ITC outlined its plans to boost the company's RoCE (Return on Capital Employed) by up to 20%. The demerger will establish a new entity called ITC Hotels, equipped with a well-capitalized and debt-free balance sheet. The best part is that existing shareholders are in for a treat, as they will be rewarded with 60% of the shareholding in the new demerged entity.
So, how will the shareholding work? For every 10% stake an investor holds in ITC, they will own a 6% share in ITC Hotels directly and an additional 4% indirectly through their stake in ITC. This structure aims to ensure fairness and preserve shareholders' interests.
ITC Hotels will hold 20% of the capital employed, and ITC's EBIT (Earnings Before Interest and Taxes) from hotels will be excluded from the consolidated numbers since the new entity will be considered an associate company. For financial needs, ITC Hotels will be self-reliant in raising capital, as debt won't be a burden for the company. It's estimated that the new entity will have impressive net assets of around Rs 60 billion, with no debt.
The focus on remaining asset-light is a strategic move that will reduce capital requirements. The capex (Capital Expenditure) outlay will closely match the depreciation amount, indicating a prudent approach to growth. Additionally, ITC and the new entity will have a royalty arrangement for using the brand name, benchmarked against industry standards.
This promising development has led to a bullish outlook for ITC's stock among top brokerages. Emkay and Nuvama stand strong with 'Buy' calls and target prices above Rs 500 per share. With the demerger unlocking significant value, Nuvama has set a target price of Rs 560 per share. Emkay, following a Sum-of-the-Parts (SoTP) valuation, predicts a target price of Rs 525 per share. The cigarettes division is valued at Rs 283 apiece, contributing 54% to the target price, while other FMCG segments are valued at Rs 120 per share, comprising 23% of the target price. Prabhudas Lilladher, maintaining its 'Accumulate' call, has increased the target price from Rs 455 to Rs 478.
Amidst a volatile trading day, ITC shares are trading nearly flat. The stock recently touched a 52-week high, tantalizingly close to the iconic Rs 500 mark at Rs 499.7 per share.
Excitement fills the air as the ITC Hotels demerger sets the stage for a promising future. Investors are eagerly awaiting the surge in ITC's share price, taking it to new heights of success. Keep an eye on this unfolding story, as ITC's journey to greatness has just begun!