The birth of ITC Hotels Limited (ITCHL), the hospitality arm of the diversified conglomerate ITC Ltd., had its foremost day on January 29, 2025, with the commencement of public trading of its shares. This was preceded by the separation of ITC’s hotel business w.e.f. January 1, 2025, creating ITC Hotels. This separation thus generated considerable excitement in the market and among stakeholders concerning the new company and its growth and value-creation endeavors.
market and among stakeholders about the new company embarking on its journey of growth and value creation.
Listing of Shares: It was made at a Discount to the Implied Price
On listing, the ITC Hotels shares commenced trading on the NSE for ₹180 per share, at a discount of 30.7% to the implied price of ₹260. The implied price is the value assigned to the new company based on the trading price of ITC Ltd. in the period before the demerger.
On the BSE, shares were listed at ₹188 per share, while the implied price on the BSE was ₹270. This implies that the BSE’s discount of 30.3% is a tad lower than that on the NSE, but nonetheless below the perceived value, which shows that the market sentiment towards the demerged entity might have been more prudent than anticipated.
The discount has raised questions among investors and market analysts. It is iterative of the fact that newly listed stocks drop their price for a few days or show a discount due to preliminary uncertainty or volatility post-demerger as investors assess the long-term prospects of the new entity. However, the fact that both exchanges witness steep discounts mean market participants are still weighing in on the outlooks for ITC Hotels in a competitive world of hospitality.
The Demerger and ITC Hotels: What Is Its Stake in the Stakeholders?
As of January 1, 2025, the demerger of the hotel business of ITC is completed, and January 6, 2025, has been announced as the record date for determining the shareholders of ITC Ltd. who will receive shares in ITC Hotels. Under the scheme of demerger, shareholders of ITC Ltd. will be entitled to one share of ITC Hotel for every 10 shares held in ITC Ltd. The intention behind the entire process was to strategically support the hotel business while unlocking its growth potential with focus on operational hold and long-term sustainability.
Through the separation of hospitality, ITC Ltd. intends to reposition ITC Hotels for a more niche approach in management of its luxury hotels and resorts, namely, ITC Grand Bharat, ITC Maurya, and WelcomHotels. The newly listed ITC Hotels logo will have greater independence with specialization in the hotel business, which is yet another fiercely competitive environment in India and globally.
The demerger of ITC Hotels includes investments into a myriad of hospitality entities such as Bay Islands Hotels Ltd., Fortune Park Hotels Ltd., WelcomHotels Lanka Pvt Ltd., and Gujarat Hotels Ltd., etc. Such diversified exposure places the fledgling company on a fortified platform with regional strengths and international capabilities that may be paramount to its growth.
According to the company’s announcement, ITC Hotels as an entity will be listed under Series ‘BE’ for the time being before being transferred to Series ‘EQ’ once compliance conditions are duly met. This allows for gradual liquidity of the stock that affords more flexibility to investors.
ITC Ltd. and Its Ongoing Performance
If ITC Hotels is now grabbing headlines, one should follow ITC Ltd., the parent company, which has remained a major player across sectors from FMCG to tobacco and from hotels. The shares of ITC Ltd. were trading on the NSE at ₹432.55, which was down by ₹2.90 or 0.67% on the day of the demerger.
ITC Ltd. saw some movement in share price on the day of the demerger, which turned out to be a minor dip. The diversified business model continues to reap benefits in various fields. It is felt that the spin-off of the hotel business will be further unlocking value for both ITC Ltd. and ITC Hotels in the long run as both companies now have an acute focus on their specific sectors.
How ITC Hotels Listing Will Impact ITC Shareholders
In the view of ITC Ltd. shareholders, opportunities and challenges bedeck the demerger. Investors have received one share of ITC Hotels for every ten shares held in ITC and thus have a claim in the newly listed entity. However, the stock price dropped on listing day, leading some to wonder if this reflects a gloomy outlook for ITC Hotels in the short term.
ITC shareholders must also consider how they will determine the cost of acquisition of shares in ITC Hotels. According to ITC’s press release, total cost shall be ₹54,040 for 100 shares of ITC Hotels (ITCHL), and not ₹50,040 as had been stated earlier. This note is important for shareholders who held their ITC Ltd. shares prior to the demerger, as they now have to revise their calculations based on the modified cost for purposes of tax liability and capital gains assessments.
That is to say, if an investor held 1,000 shares of ITC Ltd. bought at ₹400 per share, they would receive 100 shares in ITC Hotels. The total cost of purchasing the ITC Hotels shares would be apportioned, such that ₹3,45,960 was attributed to the ITC shares while ₹54,040 was attributed to the 100 ITC Hotels shares. Due adjustments are to be made in the financial expectation of the shareholders, since these changes may affect their future tax liability.
Will ITC Hotels prosper – the road ahead?
With growing demand for luxury travel and leisure, the Indian hospitality sector is out to be potentially growing. ITC Hotels, having its time-honored tradition and excellence, has a solid foundation for further growth. With this demerger, the company will be more focused on its core activities, on foot artistry, and on enhancing its business strategies to match the changing demands of present domestic and incoming foreign tourists.
While the initial market reaction has been cautious, the future of ITC Hotels will be dependent on how well it implements its own growth strategy in a competitive market. Should it leverage its brand with the expansion of its footprint, it stands to become a strong contender in India s luxury hospitality.
The big question to investors, though, is whether the current discount is a buying opportunity or a precursor to trouble. Because of the volatility associated with newly listed stocks, it could be sometime before ITC Hotels finds its footing with its new identity and the market is able to set a value on its long-term prospects.
In the coming months, ITC Hotels will be under an investor and industry observers’ watch as it embarks on its journey as an independent operation.
