10:1 Split Ratio Soon, 625% Dividend, 3 Bonus: Big Announcement In FMCG ITC; Buy For Highest Rs 555 TP

FMCG giant ITC Ltd is once again the talk of the town as it will be meeting the board of directors next month to discuss further development in its demerger of ITC Hotels business. The demerger is in the ratio of 10:1. As per the latest report, the largest FPI in ITC is likely to not be part of the hotel business and may sell its stake further. Apart from that, ITC shares are expected to benefit highly from the new recycling and reuse of plastic packaging rules which will be in effect from from FY2025.

Despite volatility, ITC shares have been broadly in green in the five trading sessions of May, with marginal upside on BSE. On May 7th, the stock ended at Rs 440.40 apiece, up by 1.33% on BSE with a market cap of Rs 5,49,827.13 crore.

The stock's 52-week high and low is at Rs 499.60 apiece, and Rs 399.30 apiece.

The stellar buying in ITC comes at a time when Sensex and Nifty plunged by over 0.5% on Tuesday, while the market saw broad-based selling. Also, ITC shares were unfazed by a news report where it was claimed that British American Tobacco (BAT) is likely to not be part of ITC's hotel business demerger.

As per the Economic Times report, an industry executive aware of the plans said this indicates BAT doesn't have any interest in the hotel business and may sell its stake in ITC Hotels Ltd once the company gets listed in the next 4-6 months.

ITC has not made any official statement on the media report, and GoodReturns.I could not confirm the same.

In its regulatory filing, ITC said, "The Notice convening the Meeting of the Ordinary Shareholders of
ITC Limited on Thursday, 6th June, 2024 at 10.30 a.m. (IST), pursuant to the directions of the Hon'ble National Company Law Tribunal, Kolkata Bench, vide Order dated 22nd April 2024, to consider, and if thought fit, approve the proposed Scheme of Arrangement amongst ITC Limited and ITC Hotels Limited and their respective shareholders and creditors."

The split-up of the hotel business from ITC will be in the ratio of 10:1. Meaning, for every (Ten) Ordinary Shares of the face and paid-up value of Re. 1 each held in ITC, 1 (One) equity share of the face and paid-up value of Re. 1 in ITC Hotels

Post the implementation of the Scheme, the shareholders of ITC will directly hold about 60% of ITC Hotels,
proportionate to their shareholding in ITC. The balance stake of about 40% will be held by ITC.

Another key development in ITC is the new recycling and reuse policy.

India has introduced mandatory regulations for the recycling and reuse of plastic packaging starting from FY2025 to control the plastic waste menace.

Kotak Institutional Equities believes this new policy is beneficial for ITC which has a diversified business portfolio ranging from hotels, paper packaging, cigarettes and other FMCG offerings.

According to Kotak, with low exposure to plastic packaging in hotels, paper packaging, cigarettes and agri-business, which formed ~75% of its revenues in FY2023, the overall company-level exposure to plastic packaging also remains low for ITC. The company has already plastic positive for the last two years and has recycled 99%+ of the waste collected.

Further, Kotak's note added that most of its plastic packaging is recyclable. It is now focusing on innovation, redesigning its packaging, and looking for alternatives to further reduce the intensity of virgin plastic used for packaging; however, is yet to announce the targets for using recycled plastic for packaging. We believe that ITC's packaging division will benefit as the consumer sector continues to migrate toward more sustainable packaging solutions.

Kotak has recommended ADD on ITC shares for a target of Rs 460, which the stock price is currently nearing.

But the highest target in ITC is by JM Financial who as of May 7, 2024, maintained BUY for a target price of Rs 555.

Other key highlights of ITC:

Dividend: At the latest, in 2024 during February month, ITC turned ex-dividend earlier for an interim dividend of Rs 6.25 per share or 625% having a face value of Re 1 each for the financial year ending on 31st March 2024. As per Trendlyne data, since July 2001, ITC has delivered up to 28 dividends to its investors. In the last 12 months, ITC has paid up to Rs 15.75 per share dividend.

Stock Splits: So far in its history, ITC has split only once in the ratio of 1:10 and that was done in September 2005. ITC split its 1 equity share into ten equity shares. The face value was trimmed to Re 1 from Rs 10, hence, a stock split ratio of 1:10.

Bonus Shares: ITC has rewarded investors with three bonus issues. The first bonus issuance was in September 2005, for a 1-to-2 ratio. This meant that ITC awarded 1 new bonus share on the existing two equity shares. ITC further declared a 1:1 bonus issue in August 2010, and a 1:2 ratio in July 2016.