ITC share price continued its downward movement for the second staright day on July 25, a day after the company officially announced the demerger of its hotel business. ITC shares 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 copy, the ITC share price was down ₹13.75, or 2.92%, to ₹457.15.
“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 on July 24.
After the announcement, the ITC shares fell 4% as investors did not take the demerger details in a positive way.
Why is ITC stock falling?
ITC will still hold 40% stake in the hotels subsidiary that is being demerged, analysts feel that investors are seeing this as partial value unlocking for the parent company.
“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.
Emkay Global has given a buy recommendation with a target price of ₹525.
ITC has gained 39 per cent in the last one year against a 10 per cent gain in the equity benchmark Sensex.
“The demerger of the hotel business has led to ITC carving out the second largest listed hotel company with regards to the number of keys. However, markets have reacted negatively to this development which could be due to investors not in sync with the proposed capital structure as well as some profit booking after the recent run up in stock prices,” said Anushi Vakharia, Research Analyst, StoxBox.
“However, we believe that the company has taken a positive step by demerging its hotel business as it has taken out the high capex and cyclical business away from the parent company. With cigarette and FMCG majorly remaining in the parent company (apart from the smaller paper and agri businesses), we expect these two businesses to generate significant free cash flow with less volatility which would lead to a P/E multiple expansion going forward. As a result, we continue to remain positive on the long-term growth story of ITC.”
Disclaimer: The views and recommendations above are those of individual analysts and broking companies, not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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