ITC Hotels listing likely in FY25. What should investors do before demerger?

economictimes.indiatimes.com:

ITC as the multibagger Nifty stock has fallen around 7% after hitting an all-time record high of Rs 499.70 on July 24. Although the market has reacted negatively to the much-awaited announcement of the demerger of the hotels business, analysts see it as a positive development with target prices going up to Rs 560. It is expected that ITC Hotels will get listed on stock exchanges in the next 12-18 months following approval from regulators, including NCLT.

ITC management told analysts last week that the demerger is tax neutral and will also improve ITC’s segment operating RoCE materially by 20%. «We believe demerger of Hotel business is positive for unlocking shareholder value as it solves capital allocation issue (given hotels business has seen capex of Rs 75 billion since it was merged into this entity,» domestic brokerage firm Prabhudas Lilladher said. ITC trades at 25.3x FY25 EPS with ROE/ROCE of 30%+/35%+ and 80%+ dividend payout.

«We increase our SOTP-based target price to Rs 478 (Rs 455 earlier, cigarette multiples increased to 22x). Retain ‘Accumulate’,» it said. As far as the hotels business is concerned, the near-to-medium-term outlook for the hotel industry looks favourable with G20, revival in business and foreign tourist travel.

«We view the demerger of the hotels business as a positive because it should allay concerns about capital allocation and use of cigarette business cashflows to develop other businesses. To note, the company had flagged its decision to explore alternate structures for the hotels business in its FY20 annual report, which was subsequently delayed by the pandemic,» Morgan Stanley analysts said. The foreign brokerage firm has valued the hotels subsidiary at Rs 17,400 crore which comes to a