The new year starts with a bang. The ITC demerger will become effective tomorrow- January 1, 2025, and the record date has been fixed on January 6, 2025. That day the ITC stock goes ex-demerger. What does it all mean for ITC shareholders? Will existing shareholders get ITC Hotel stocks and how many? Also are you eligible for ITC Hotel stocks if you buy ITC on January 6? Well, the final date to qualify for ITC Hotels shares with existing ITC shares is January 3, 2025, as investors must possess shares in ITC on the ex-date of January 6, 2025.

Well, that is only if you do not have ITC shares yet. The existing shareholders are going to receive one share of ITC Hotels for every 10 shares of ITC.  The demerger will be done through a special pre-open session that will result in ITC Hotels. The hotel arm will be ascribed an intrinsic value based on the pre-open session.

Will ITC Hotels shares reflect in your portfolio immediately? 

As the shares of ITC Hotels have not yet been transferred to qualified ITC shareholders and approval from the exchanges is still awaited, the ITC Hotel stock will continue to exist as a dormant stock within the benchmark indices Nifty 50 and BSE Sensex. ITC will carry on trading in the regular market following the adjustments made for the spin-off of its hotel business division.

After the ITC Hotels shares have been credited to the shareholders and trading is allowed by the exchange, the ITC Hotels will be taken out of the indices only after the third trading day. In case the share price of ITC Hotels hits the circuit on both first two days, then exclusion will be deferred by another three days. 

Is ITC a value buy at this price?

In a recent report, Antique Broking has given a price target of Rs 563 per equity share, around 18% higher than the current market price. Antique noted that the positive outlook for ITC appears to be supported by the strong demand for hotels and the recovery in the agricultural business.

What’s the hype all about?

The FMCG-behemoth ITC announced to de-merge its hotel business into a different entity, ITC Hotels. 

In an exchange filing the company said that the National Company Law Tribunal (NCLT) bench of Kolkata had sanctioned the scheme of arrangement amongst ITC Ltd. and ITC Hotels Ltd. and their respective shareholders in October this year.

The company got the thumbs up from shareholders for the de-merger in June 2024, with 99.6% of public institutions and 98.4% of public non-institutions casting their votes in approval of the proposal.

Following the demerger, ITC intends to retain 40% ownership in the newly formed entity, while the remaining 60% will be directly owned by the shareholders. ITC stated that it opted for a 40% stake rather than a vertical division to offer strategic backing and synergies with its hotel operations.

ITC’s performance in Q2

The company reported a consolidated net profit of Rs 4,993 crore for the quarter ended second of FY25, a growth of 2% on year, compared with Rs 4,898 crore reported in the same quarter of the previous financial year. The company’s revenue from operations rose 15.6% on year to Rs 22,282 crore during the same time frame. 

The hotel business performed well with revenue growing 17% year-on-year to Rs 789 crore in Q2 FY25, against Rs 675 crore in Q2 FY24. The PBT for the business, meanwhile, declined to Rs 117 crore in the same period as against Rs 133 crore posted in the corresponding period of the previous year.

Going forward, ITC’s 5-year P/E ratio is at 29, which is near its median P/E of 23. One more thing the company has in its favour, it is almost debt-free.   

FII and DII holdings

As of the second quarter, foreign institutional investors have decreased their holdings in the company on the other hand domestic institutional investors raised their stake in it. The FIIs had a holding of 42.68% as of September 2022, it stands at 40.53% as of September 2024. The DIIs held a 42.38% stake in the company as of September 2022, which was raised to 44.59% as of September 2024.

ITC Vs Nifty 50

In the last one year the stock has risen 4.5% and 1.9% from year to date. The stock has given a return of 12.5% in the past six months. To compare, the benchmark, the Nifty 50 has risen almost 11% in the past one year and more than 9% from year to date. The index has fallen 0.5% in the previous six months.