The record date for the eagerly anticipated ITC Hotels demerger is January 6, marking today's session as the last date for investors to pick up ITC shares in order to receive ITC Hotels shares following the demerger on the bourses.
Under the scheme of demerger, shareholders will get one equity share of ITC Hotels for every 10 shares of ITC held, with ITC keeping a 40 percent stake in the newly demerged entity. The rest of the 60 percent will be held by existing shareholders proportionate to their stake in ITC.
How will the ITC Hotels share price be determined?
On January 6, a special pre-open session will be conducted to determine the price of ITC Hotels. The price will be determined by the difference between the close price of ITC on January 3, and open price of ITC discovered during the special pre-open session.
Following this, ITC Hotels will be maintained in all the NSE and BSE Indices at a constant price for the listing day, and three business days following the listing. If the stock hits circuit limits, the exclusion will be postponed by two trading days each time.
For example, if ITC Hotels lists on February 10, 2025, then stock will compulsorily be deleted on February 13, 2025, noted Nuvama Alternative & Quantitative Research.
However, traders and investors will not be able to trade this dummy version of ITC Hotels after the special pre-open session. Trading can begin in the counter only once the scrip officially lists on the exchanges.
So do passive fund managers need to make any adjustments to their ITC shares following the demerger?
Not really, noted the Nuvama report. The end-of-day index weightages will automatically adjust to reflect the free float market cap of existing constituents, including ITC Hotels.
However, actual buying or selling (churning) will happen when ITC Hotels starts trading and gets excluded three trading days later. The real adjustments will occur on the exclusion day in the future.
How will global indices react to the ITC Hotels listing?
MSCI: According to Nuvama's estimates, ITC Hotels is expected to meet the criteria for inclusion in the MSCI Global Small Cap indices. As a result, ITC will remain part of the Standard Index. However, following the listing of ITC Hotels, the hotel business will be moved to the Small Cap Index and will no longer be part of the Standard Index.
FTSE: "As per the current methodology, ITC Hotels will be excluded if it does not list within 20 working days after the record date of the demerger," said the research firm.
When will ITC Hotels list?
So far, there is no date of listing shared and it might take a few weeks to receive approval.
"However, ITC Hotels is being carved out from one of the biggest giants so we expect the listing process should be fast tracked and quite likely ITC Hotels may be listed in a month’s time," said Abhilash Pagaria, Head - Nuvama Alternative & Quantitative Research.
As per Japan-based brokerage Nomura, ITC Hotels could list before mid-February.
Three prominent recent instances of a spin-off:
- Jio Financials: The business was demerged from Reliance Industries and took 33 days to list, following the record date.
- Piramal Pharma: The business was demerged from Piramal Enterprises and took 45 days to list, following the record date.
- NMDC Steel: The business got demerged from NMDC Ltd and and took 4 months to list, following the record date.
Also Read | Cash worth Rs 1,500 crore to be transferred to ITC Hotels for growth
What price will ITC Hotels be listed at?
According to Nuvama, the initial market price for ITC Hotels shares could range between Rs 150-175 per share.
"ITC’s hotel business could attract premium valuation post listing vis-à-vis its current
valuation under ITC, led by better price discovery in the market. However, on the flip side, there
will be supply overhang in the stock owing to potential exit from existing shareholders like BAT
(~15 percent stake) and SUTTI (~5 percent stake)," said Sharekhan.
However, in accordance with Nuvama Institutional Equities view, the brokerage believes that the price discovery for ITC Hotels shares could be the range of Rs 150-170 per share.
Japanese brokerage Nomura believes that ITC Hotels would list within the Rs 200–300 per share range, which surpasses most estimates. As a result, the market-cap for the player could be between Rs 42,500 crore to Rs 62,200 crore, added the brokerage.
How will ITC shares react?
ITC's share price is expected to be adjusted by Rs 22-25 on the ex-date, reflecting its 40 percent stake in the hotel business and incorporating a 20 percent holding discount, as per Nuvama.
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