Jefferies foresees strong growth potential for ITC Hotels, value to unlock post listing

ITC shares have traded relatively flat over the past year, gaining 10 percent.

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Cigarettes-to-hotels firm ITC Ltd shares gained in the morning trade on November 28, after international brokerage Jefferies shared its outlook on the diversified conglomerate's hotels arm following its recent meeting with ITC Hotels' management.

The ITC Hotels demerger is expected to be complete in the January-March quarter of the current fiscal year, said the brokerage. Based on ITC Hotels' revenue, EBITDA and room inventory profile, the firm is the number two player in the Indian hotels sector.

At the current juncture, Jefferies said that ITC Hotels is around four percent of SoTP valuation of ITC, which may unlock further value post the listing. Following the demerger, ITC Hotels is likely to see a strong balance sheet, with net cash levels of Rs 1,000-1,500 crore.

At 10.10 am, ITC shares were trading at Rs 480.05, higher by 0.65 percent compared to the previous session's closing price.

The hotels arm of ITC is targeting growth from greenfield commissioning in the recent years, scaling up its management contracts and focusing on a premiumization thrust, amid industry tailwinds.

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Last year in July, ITC announced the demerger of its hotels business into a separate entity. Shareholders of ITC will get one share in the soon-to-be-listed hotel entity for every 10 shares they hold in the company. After the demerger, ITC will hold 40 percent of the hotel business and the rest 60 percent will be held by existing shareholders proportionate to their stake in ITC.

During ITC's annual general meeting in 2024, ITC's Chairman and Managing Director (CMD) Sanjiv Puri said that the demerger should take place within the stipulated timeline of 15-18 months from the first announcement regarding the spin-off.

He added that the listing could happen by the end of the year. "It's very difficult to put an exact date to it because these are regulatory processes that one has to go through and sometimes there are queries that have to be answered, but I don't think there'll be any big departure (from the stated timeline)," added Puri.

ITC shares have traded relatively flat over the past year, gaining 10 percent as compared to the Nifty 50's run of 22 percent during the same time period.

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