Why ITC share price fell 4% on much-awaited hotel business demerger announcement? - Explained

livemint.com:

ITC officially announced the demerger of its hotel business on Monday (July 24), putting all the rumours to rest. However, the news triggered a sharp selloff in the stock as shares of ITC fell 3.87 per cent to close at ₹470.90.

In the intraday session, the stock hit its fresh 52-week high of ₹499.60. “After due consideration, the board accorded its in-principle approval to the demerger of the hotels business under a scheme of arrangement, with the company holding a stake of about 40 per cent in the new entity and the balance shareholding of about 60 per cent to be held directly by the company’s shareholders proportionate to their shareholding in the company," ITC said in a regulatory filing.

Read more: ITC board gives in-principle nod for demerger of hotels business; stock falls over 3% ITC is a diverse group with businesses in various sectors, including cigarettes, FMCG, hotels, agriculture, paper, IT, and packaging. Market experts have been speculating about the possibility of ITC restructuring its business, including the demerger of its FMCG and IT services business.

But why did the stock fall if the demerger announcement was not a shocker? Experts see a combination of factors behind the stock's fall. But the biggest reason could be the anticipation of partial value unlocking after the demerger.

Since ITC would still retain 40 per cent shares of the demerged entity, investors appear to be believing that value unlocking, after the demerger, will not be significant. "The much-awaited demerger announcement from ITC did not end up bringing positive returns for the stock because of a combination of reasons, including the sombre mood of the market, sell-on-news action followed by traders, and only a partial value unlocking