Brokerages cheer for ITC hotels demerger with hopes of value unlocking

ITC

Trade

• Watchlist
• Portfolio
• Message
• Set Alert

 

 

Choose Stock Exchange: BSE LIVE NSE LIVE

26 Aug, 2025 12:21

Volume

Todays L/H

More

×

ITC Ltd announced the much-awaited demerger of its hotels business on July 24 under a scheme of arrangement. After the split, the consumer goods company will continue to hold a 40 percent stake in it and the rest will be distributed among existing shareholders proportionate to their stake in ITC.

Though a decision to not do a full split of the newly carved hotel business came as a negative surprise for market participants, leading to a 4 percent slump in the stock on Monday, brokerages cheered for it.

Global research and broking firm Morgan Stanley saw the demerger of the hotels business as a clear positive for ITC.  According to the firm, it should allay concerns over capital allocation and use of cigarettes business cashflows to develop other businesses over the medium to long term. Morgan Stanley also believes that the decision can help ITC's hotels business in charting its own growth path. The brokerage has an 'overweight' stance on ITC, with a price target of Rs 474, which includes Rs 17 for hotels.

Goldman Sachs also has a positive view for the demerger as it believes hotels was an asset-heavy business for ITC, contributing just 2 percent to its EBIT, but taking up 20 percent of the capital employed. The firm has ascribed an SOTP (sum of the parts) of Rs 12 for hotels out of its price target of Rs 470 for ITC.

Adding to the list, Nomura argued the hotel demerger as a positive move for ITC because it may lead to value unlocking. It feels that the demerger will help ITC improve its balancesheet, capital allocation and RoCE (Return on Capital Employed) profile. Another positive emerging out of the spin-off as pointed out by Nomura is that it will leave ITC with surplus cash and a higher dividend payout profile as it will no longer need to provide a capex (capital expenditure) for its hotels business. The firm hailed the decision to retain control of the newly carved entity with itself. Nomura has a 'buy' call on ITC, with a price target of Rs 485.

On the other hand, domestic brokerage Emkay Financial Services awaits further clarity on ITC's rationale behind retaining 40 percent stake in the new entity, the royalty structure, any tax implications and the key criteria for gaining a strategic investor/partner in the business. ITC's management call is scheduled to take place on July 27.

Despite that, Emkay anticipates further value unlocking for ITC as the company looks to clinch a strategic business investor. The brokerage house forecast a K-shaped recovery in ITC’s other FMCG businesses. The firm retained its 'buy' call on the stock, with a target price of Rs 525.