ITC Hotels in 2025 Demerger: Insights and Opportunities for Investors

In a significant move within the Indian corporate landscape, ITC Limited has finalized plans to demerge its hotel business, forming ITC Hotels Limited as a standalone entity. This hotel demerger news has sparked interest among shareholders and market analysts alike. The demerger will officially take effect on January 1, 2025, marking a pivotal step for ITC and its shareholders. The decision, approved overwhelmingly by shareholders and regulators, is aimed at unlocking shareholder value and allowing ITC Hotels to operate as an independent, focused hospitality entity.

Strategic Rationale Behind the ITC Hotels Demerger

The separation of ITC Hotels is a strategic initiative to provide focused leadership and operational flexibility for the hospitality business. ITC believes that this move will enhance competitiveness, attract sector-specific investments, and enable ITC Hotels to pursue growth opportunities independently. By doing so, ITC aims to maximize shareholder returns and bolster the presence of ITC Hotels in the dynamic Indian hospitality sector.

Impact on ITC Shareholders

• Share Allocation: ITC shareholders will be granted one share of ITC Hotels for every ten shares they hold in ITC Limited.
• Ownership Structure: Post-demerger, ITC Limited will retain a 40% stake in ITC Hotels, while the remaining 60% will be directly owned by ITC shareholders.

This structure ensures that shareholders retain exposure to ITC’s diversified business while benefiting from the independent growth potential of ITC Hotels. This update is crucial for anyone monitoring ITC Hotels’ share price movement post-demerger.

Financial Overview of ITC Hotels Limited

The newly formed ITC Hotels Limited will commence operations with a robust financial foundation:

• Asset Base: ITC Hotels will have a total asset base of approximately ₹11,000 crore, including ₹1,000-₹1,500 crore in net cash reserves.
• Debt-Free Balance Sheet: The entity will begin operations without any debt, ensuring a strong starting position in the market.

In recent quarters, the hotel segment of ITC has demonstrated consistent growth. For the September quarter of FY24, ITC’s hotel business reported a 12.1% increase in revenue year-on-year, with improvements in EBITDA margins attributed to higher Revenue Per Available Room (RevPAR) and strategic cost management. These financial highlights make ITC Hotels an attractive proposition for investors.

ITC’s Stake Acquisitions Ahead of Demerger

With the record date for the demerger of ITC Hotels set for January 6, 2025, ITC Limited has also acquired stakes in two key companies in the hospitality sector. This strategic move aligns with its long-term goals in the industry.

• HLV Limited: ITC acquired a 0.53% stake in HLV Limited, the operator of The Leela Mumbai. The Leela Mumbai, established in 1986, is a flagship property that blends India’s heritage with modern luxury. HLV Limited’s shares trade on both the BSE and NSE and closed at ₹18.30 per share on December 23, 2024. While the stock has delivered a negative 34% return over the past year, it has yielded a remarkable 209% return over the past five years.
• EIH Limited: ITC also acquired a 2.44% equity stake in EIH Limited, the operator of luxury Oberoi hotels. The acquisition was completed by transferring shares from Russell Credit, ITC’s wholly-owned subsidiary, signaling ITC’s commitment to expanding its presence in the luxury hospitality sector.

Regulatory Approvals and ITC Hotels Listing Plans

The demerger has secured all necessary regulatory clearances, including approval from the National Company Law Tribunal (NCLT). ITC shareholders overwhelmingly supported the move, with 99.6% voting in favor during the recent meeting. Following the demerger, shares of ITC Hotels Limited are expected to be listed on major stock exchanges, enabling shareholders to directly trade and benefit from the performance of the hospitality business.

ITC Share Price and Market Outlook

On December 23, 2024, ITC shares closed at ₹474.25 per share, up 2.07% from the previous close. The stock’s intraday high was ₹477.70, and its low was ₹467.60, with significant trading volumes on both the NSE and BSE. Jefferies has set a target price of ₹550 per share for ITC, citing its strong portfolio across cigarettes, FMCG, agri, and hotels.

Broader Implications for the Indian Hospitality Industry

This demerger reflects a broader trend among conglomerates to streamline operations and create sector-specific value. By establishing ITC Hotels Limited as a focused entity, ITC positions itself to compete more effectively in the growing hospitality sector, leveraging its established brand and infrastructure.

ITC Hotels is set to grow its room inventory from 13,000 to 18,000 keys over the next 4-5 years, with 95% of new additions being managed properties. This growth strategy, combined with a debt-free balance sheet and robust cash reserves, positions ITC Hotels for significant future success.

What’s Next for ITC Hotels?

As ITC Hotels gears up for its independent journey, the focus will be on capitalizing on growth opportunities within the hospitality sector. The company’s robust financial position and strong brand presence will serve as key drivers in achieving its long-term goals.

For shareholders, this move offers a dual advantage: retaining exposure to ITC’s core businesses while directly participating in the growth of ITC Hotels. The upcoming listing of ITC Hotels will provide further opportunities for value creation and portfolio diversification.

With the demerger set to take effect on January 1, 2025, all eyes will be on ITC Hotels as it embarks on its independent journey in the Indian and global hospitality markets.