International brokerage firm Jefferies expects ITC Hotels to see significant outflows on account of ETF selling. According to their latest report on the newly listed stock Jefferies highlighted that “ITC Ltd is part of key indices, ITCH could see outflows to the tune of $190-200 million (based on stock price) related to ETF selling in the stock.”
That apart Jefferies also expect BAT or British American Tobacco to sell some of its stake in ITC’s demerged hotel business, “British American Tobacco (BAT) will hold ~15% of the demerged Hotel entity (it has 25% stake in ITC Ltd). Earlier in October-24, BAT’s mgmt had said that it had no intention for BAT to be shareholders in ITC hotels in India, and that it intends to sell stake at the right time.”
ITC Hotels listed at Rs 188 on the BSE and Rs 180 on the NSE on January 29. It however, gave up gains in intra-day trade and closed at Rs 178 on BSE, near the day’s lows. ITC Hotels initial market capitalisation is approximately Rs 39,000 crore.
ITC demerged hotel business in 1:10 ratio
The demerger of ITC’s hotel business was executed through a Scheme of Arrangement approved by the NCLT. Under this structure, ITC shareholders directly received approximately 60% of ITC Hotels equity in proportion to their ITC holdings. Furthermore, the parent company, ITC retained the remaining approximately 40% stake in the demerged entity. The demerger ratio was set at 1:10, which means that the shareholders received one share of ITC Hotels for every ten shares of ITC.
Jefferies bets on ITC Hotels strong position in hospitality sector
The brokerage firm further highlighted that ITC Hotels holds a strong position in the Indian hospitality industry. Among listed players, it is the second-largest after Indian Hotels Company (IHCL). Post-demerger, ITC Hotels stands out with a debt-free balance sheet and a cash reserve of Rs 15 billion. However, its return on capital employed (ROCE) remains below 10% due to recent investments, including a Sri Lanka hotel and real estate project worth Rs 35-40 billion, added the brokerage firm in its report.
ITC Hotels share allotment
The demerger ration for ITC Hotels and ITC was 1:10. Shareholders on or before January 3 were eligible for the allotment and got shares and in an exchange filing, the company stated, “The Board of Directors of ITC Hotels has allotted 125,11,71,040 equity shares of Rs 1/- each to the shareholders of the company as on the record date, January 6, 2025.”
Founded in 1975, ITC Hotels is a well-known name in India’s hospitality sector and has a presence in over 90 locations. It operates more than 140 hotels across the country.