- By Vaamanaa Sethi
- Tue, 25 Jul 2023 01:16 PM (IST)
- Source:JND
The shares of ITC continued to decline for the second day in a row on July 25, a day after the company announced the demerger of its hotel business. ITC stock, which is said to be Nifty’s star performer, lost nearly 7% in the last two days.
ITC shares, which went down 4% yesterday, opened at ₹469.95 against yesterday's close of ₹470.90 on BSE, and then fell further to hit a low of ₹455.95. At the time of writing this article, the shares were trading at Rs 456.50 per piece, down by 3.15%, at 1:08 pm IST.
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“After due consideration, the board accorded its in-principle approval to the demerger of the hotels business under a scheme of arrangement, with the company holding a stake of about 40 per cent in the new entity and the balance shareholding of about 60 per cent to be held directly by the company’s shareholders proportionate to their shareholding in the company," ITC said in a regulatory filing.
ITC will still hold 40% stake in the hotels subsidiary that is being demerged, analysts feel that investors, as quoted by Livemint, are seeing this as partial value unlocking for the parent company.
The hotels business contributes less than 5% to ITC's total revenues and EBIT, and analysts say the formation of a new subsidiary ITC Hotels and a subsequent listing isn't exactly a game-changer but points towards a sharper capital allocation strategy. ITC Hotels has so far accounted for 20% of the conglomerate’s capex.
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"The average annual free cash flow has been negative in the range of Rs 150-300 crore. RoCE has also been in single-digits for most years, well below cost of capital," Jefferies analysts was quoted as saying by The Economic Times.
Brokerage-firm Emkay Global has given a buy recommendation with a target price of ₹525.
“We seek clarity on the rationale behind retaining 40% stake in the new entity, the royalty structure, any tax implications and the key criteria for gaining a strategic investor/partner in the business. As Company looks to clinch a strategic business investor, we expect further value unlocking ahead," Emkay Research said in its latest report.