ITC Company Share Price Falls to 461
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ITC Ltd has recently faced a decline in its stock value due to its proposal to demerge its hotels business, leaving investors and analysts curious about the future of the new entity. The uncertainty surrounding the rationale for retaining a 40% stake, royalty structure, tax implications, and strategic investor criteria has led to varied valuations by analysts. Let’s delve into the details of the proposed demerger and the speculations on ITC’s hotels business valuation.
A Strategic Demerger Proposal
ITC’s hotels business, a part of the company since 2004, has shown impressive growth with a CAGR of 11% over the past two decades. With over 120 hotels and 11,600 keys across six brands, it holds substantial value. However, the proposed demerger has left analysts seeking clarity on key factors before assessing the business’s true potential.
Valuation Speculations
Analysts estimate a 20% discount to Indian Hotels valuations for ITC’s hotels business. Valuations range from Rs 17,000 to 24,000 crore. Morgan Stanley values the hotels business at Rs 17,400 crore, while JM Financial sees a potential valuation of Rs 24,000 crore at a 20 times multiple.
Factors Influencing Valuations
Analysts use various parameters like EV/sales and EV/Ebitda multiples to determine the hotels business’s worth. They also consider the parent company’s holding and the potential impact on ITC’s share price. There is a debate about the necessity of a holding company discount and the possibility of future capital infusions.
Future Prospects
The proposed transaction is subject to approvals from multiple regulatory bodies, and existing shareholders will hold 60% stake in the new entity. Despite uncertainties, ITC’s Chairman, Sanjiv Puri, remains positive about creating sustained value for stakeholders.
The proposed demerger of ITC’s hotels business has sparked speculation among analysts, leading to varying valuations for the new entity. With several factors still pending clarity, the true potential and impact of this strategic move are yet to be seen. Investors are keenly awaiting further updates and the final approval of the board to gauge the long-term prospects of the hotels business under this new structure.