ITC Hotels Demerger: How Shares Will Be Allotted To Existing Shareholders, Expected Price And More

The listing of ITC Hotels is expected to take nearly a month, based on the timeline of previous major demergers. For instance, Jio Financial's listing took approximately 33 days

Nuvama estimates that ITC Hotels' initial market price could fall between Rs 150 and Rs 175 per share

Source : ITC Hotel

ITC's decision to spin off its hotel business is expected to impact passive funds and exchange-traded funds (ETFs), similar to the effects observed during the Reliance Industries-Jio Financial demerger. Since ITC is a part of major indices like Nifty and Sensex, it is included in various index funds and ETFs. The demerger of the diversified conglomerate ITC Ltd came into effect on January 1, 2025.

What Will Happen To Shareholders

As part of the demerger plan, ITC shareholders listed on January 6 will receive one share of ITC Hotels for every 10 shares of the parent company they hold.

ITC Hotels announced that it will issue equity shares directly to ITC shareholders, with approximately 60 per cent of the stake being allocated in proportion to their holdings in ITC, while the remaining 40 per cent will continue to be retained by ITC.

Special Trading Session

On January 6, the record date for the demerger, BSE and NSE will conduct a special trading session to determine the fair price of ITC Hotels. Based on calculations by SBI Securities, if ITC Hotels lists at an EV/EBITDA multiple of 20.0x-30.0x, the share price is expected to fall within the range of Rs 113 to Rs 170 per share. The average EV/EBITDA multiple of its peers, Indian Hotels and EIH Ltd, stands at 25x.

Demerger Process

Previously, when a company underwent a demerger, it was removed from domestic indices, causing significant churn for passive funds. However, in line with global practices, domestic index providers have adopted a new approach, allowing the hived-off entity to remain in the index for three days after listing to facilitate the selling process by passive funds.

Under the current practice, ITC Hotels will continue to be part of major indices like Nifty 50 and Sensex until its listing. The stock will be removed from the indices on the third day after it begins trading. However, exchanges have the option to delay the stock’s exit from the index if it continues to hit circuit limits.

A similar situation occurred in August 2023 during the Jio Financial demerger, when the stock hit the lower circuit for five consecutive sessions following its listing. As a result, passive funds rushed to sell their holdings, prompting a delay in its removal from the indices.

“ITC Hotels will be dropped from all NSE and BSE indices at the last traded price, which is effective at the opening of ITC Hotels listing date plus three business days. If the stock hits circuit limits, the exclusion will be postponed by two trading days each time," according to a Nuvama Alternative and Quantitative Research report.

The listing of ITC Hotels is expected to take nearly a month, based on the timeline of previous major demergers. For instance, Jio Financial's listing took approximately 33 days. Until the listing occurs, the stock's price is likely to remain unchanged.

“(The price) will be calculated based on the difference between the closing prices of ITC on January 3, 2025, and the open price of ITC discovered during the SPOS (special pre-open session) on January 6, 2025," the report said.

Expected Share Price Of ITC Hotels

Following the demerger shares of ITC Hotels are expected to list on the stock exchanges within a range of Rs 200-300 per share, according to estimates from global brokerage firm Nomura. "We believe the listing of ITC Hotels shares will be in the range of Rs 200-300 per share at a market cap of Rs 42,500-62,000 crore, which is higher than our and consensus current estimates," Nomura's Mihir P Shah said, as per a The Economic Times Report.