ITC Limited is set to demerge its hotels business, ITC Hotels, with the record date confirmed as January 6, 2025. This strategic move has sparked curiosity among investors, fund managers, and analysts. Here’s an in-depth analysis based on insights from Nuvama’s alternative and quantitative research:
Key Highlights of the Demerger:
- Price Determination for ITC Hotels:
- The valuation of ITC Hotels before listing will be calculated as the difference between ITC’s closing price on January 3, 2025, and its opening price during the special pre-open session (SPOS) on January 6, 2025.
- Treatment by Passive Indices:
- ITC Hotels will temporarily be maintained in major NSE and BSE indices at a constant price, reflecting the pre-determined valuation.
- The entity will be excluded from indices three trading days after listing unless circuit breakers delay its removal.
- Impact on Fund Managers:
- Domestic passive fund managers (e.g., Nifty50, Sensex trackers) are not required to make immediate adjustments on January 6, 2025. Actual churning will occur upon ITC Hotels’ exclusion post-listing.
- Global Index Implications:
- MSCI is expected to include ITC Hotels in its Small Cap Index while keeping ITC Limited in the Standard Index. Temporary measures, such as introducing a detached security (ITC DET), will be in place until ITC Hotels starts trading.
- FTSE indices may exclude ITC Hotels if it fails to list within 20 working days post-demerger.
- Listing Timeline:
- Although there’s no confirmed listing date, historical precedents like Jio Financial Services and Piramal Pharma suggest a timeline of 33–45 days from the record date. ITC Hotels could potentially list by mid-February 2025.
- Fundamental Valuation:
- ITC’s share price is expected to adjust by ₹22–₹25 per share on the ex-date, reflecting its 40% stake in ITC Hotels and a 20% holding discount.
- Initial market expectations suggest ITC Hotels shares could debut in the range of ₹150–₹175.
Strategic Implications:
This demerger highlights ITC’s focus on unlocking value for its shareholders. Analysts believe ITC Hotels will attract attention as a standalone entity, especially given its potential inclusion in MSCI indices and its market valuation. Passive fund managers will need to navigate weight adjustments in major indices, further enhancing the stock’s visibility.
While the immediate impact on ITC Limited’s valuation remains a concern, the long-term outlook for both entities appears promising. Investors are advised to monitor updates closely as ITC Hotels approaches its debut.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investors are encouraged to conduct their own due diligence or consult a financial advisor before making investment decisions.
