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Informist, Thursday, Jan. 2, 2025

 

MUMBAI – Shares of the demerged hotel business of ITC Ltd., ITC Hotels Ltd., which are expected to list before mid-February, will likely list at INR 200-INR 300 per share and at a market capitalisation of INR 425 billion-INR 620 billion, Nomura Global Markets Research said. The holding company had earlier said it would give one share of ITC Hotels for every 10 shares held in ITC on a record date set for Monday. Post the demerger on Wednesday, ITC holds 40% shareholding in the hotel business. 

 

Earlier this week, Sharekhan had said the initial price discovery could be in the range of INR 150-170 per share. The brokerage has set the 12-month target price of ITC Hotels at INR 200 per share in a base case and INR 285 per share in a bull case. However, in a bear case, the brokerage firm expects the shares of the hotel company to reach INR 158 per share in 12 months. Sharekhan had said it had not considered the INR 15 billion cash and cash equivalents, which were transferred to the hotel business, for calculating the enterprise value. 

 

"We expect value unlocking for ITC Hotels with the creation of a pure-play hotels entity...," Nomura said. The demerged hotel company will hit the bourses with zero debt on its balance sheet, and with plans to invest up to 8-10% of its reenue towards capital expenditure. Currently, ITC Hotels has over 13,000 keys in inventory across 140 hotels at over 90 locations, Nomura said, adding that the company plans to increase this number to over 18,000 keys across over 200 hotels by 2030.

 

On the margin front, the company lags behind EIH Ltd., Chalet Hotels Ltd., and Lemon Tree Hotels Ltd., while it is ahead of Royal Orchid Hotels Ltd. and Indian Hotels Ltd. ITC Hotels' earnings before interest, tax, depreciation, and amortisation margin is at 33.1%. EIH's EBITDA margin is 36.9% and that of Lemon Tree is 48.8%, Nomura said.   

 

The share price of the holding company will likely fall to INR 20-INR 22 from the current market price, considering its 40% stake in the hotel business, with a 20% holding company discount, Sharekhan had said. However, Nomura said the hotel business of ITC accounts for nearly 5% of its share price. In 2023-24 (Apr-Mar), the hotel segment contributed nearly 4% to the holding company's total revenue and 3% to the company's EBITDA with an EBITDA margin of 34%.

 

In another scenario, Nomura said the new business could also list at INR 170-INR 275 per share with market capitalisation at INR 350 billion-INR 570 billion, assuming its valuation on the basis of its estimates of the company's EBITDA for FY27 at INR 14.6 billion. 

 

ITC Hotels will be the 51st stock in the Nifty 50 index and the 31st stock in the Sensex until the fourth day of its listing. The shares will be maintained at a constant price. Earlier this week, Nuvama Institutional Equities had said the constant price of ITC Hotels before it lists will be calculated on the basis of the difference between the closing price of ITC on Friday and its open price discovered during the special pre-open session on Monday.

 

Nomura has increased the target price of ITC to INR 575 from INR 555 and kept the 'buy' rating unchanged. At 1433 IST, shares of ITC traded at INR 486.65 on the National Stock Exchange, up 0.6%.  End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Aman Aryan

Edited by Tanima Banerjee

 

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