ITC shares rally 3% to fresh peak. What's the trigger?

economictimes.indiatimes.com:

ITC on Wednesday rallied 3% to hit a fresh 52-week high level on reports that the process of demerger of its hotel business is underway. The Kolkata-based company is said to be exploring alternate structures for its hotel business in line with industry dynamics, according to a TV channel. Following the news, ITC shares rallied over 3% to hit a fresh high of Rs 480.60 on BSE.

Today's report comes days after global brokerage firm Nomura also reported that divestment of ITC's hotels business is on the cards and that the company is evaluating various alternate structures such as REIT and JV to ensure that the divestment is cost- and tax-effective. «Hotels business is witnessing strong improvement in ARR (average room rentals), with travel and tourism activities (including business and foreign inbound travel) back at pre-Covid levels. No large capex planned for the business, as ITC has moved to an asset right model; and, current hotel margins are sustainable over the medium term,» Nomura analyst Mihir Shah had said in a report last month.

Nomura has a target of Rs 485 on the stock while Jefferies sees the stock going up to Rs 520 in the next 12 months. «Cigarette margins are expected to expand by ~120bps over FY23-25E as an increase in consumer prices should more than offset tax hikes. We use the SOTP methodology to value the ITC cigarette business at 27x Mar-25 earnings, new FMCG at 5x Mar-25 sales, Agri and paperboard businesses at 15x Mar-25 EPS, and hotels at 1x Mar-25 invested capital to arrive at a price target of Rs 520,» it said.