1:10 Demerger Ratio: ITC Share Price On January 6th Record Date; What Is New Target To BUY Mega FMCG Stock?

ITC Share Price: The FMCG stock ITC's price was discovered at Rs 455.00 apiece on the record date of its demerger of ITC Hotels. However, this price is lower compared to its previous session by Rs 27. The demerger of ITC Hotels is a key positive for ITC with strong growth prospects. Hence, post the demerger, brokerages recommend BUY for ITC share price with a target price above Rs 580.

ITC Share Price:

At the time of writing, ITC's share price falls by 1.04% on BSE to trade at Rs 450.25 apiece, with a market cap of Rs 5,63,339.76 crore. The stock opened at Rs 455 apiece after a pre-open session of 9:00 AM to 9:45 AM on BSE, where its indicative price was at Rs 456. However, the stock is down from its previous session's price of Rs 482 apiece.

Currently, the stock's 52-week high and low is at Rs 528.55 apiece and Rs 399.30 apiece respectively. The stock's return on equity is at 28.22%, which is strong.

ITC-ITC Demerger:

The demerger includes a share entitlement ratio of 10:1 to ITC shareholders. Meaning, the shareholders of ITC will get 1 () equity share of the face and paid-up value of Re. 1 in the ITC Hotels for every 10 (10) Ordinary Shares of the face and paid-up value of Re. 1 each held in ITC Ltd.

Post the demerger, ITC is transferring key companies' shareholding to ITC Hotels which also came into effect on January 1, 2025:

• 100% shareholding of wholly-owned subsidiaries Fortune Park Hotels, Bay Islands Hotels, Landbase India, and WelcomHotels (Lanka).
• 68% shareholding of subsidiary Srinivasa Resorts.
• 48.96% shareholding of International Travel House.
• 45.78% shareholding of Gujarat Hotels.
• 50% shareholding of Maharaja Heritage Resorts.

From January 1, ITC retained about 40% stake in its newly demerged ITC Hotels, while the rest of 60% will be delivered among public shareholders as per the demerger entitlement ratio.

Should You BUY ITC Shares After Demerger?

Explaining the details and impact of ITC Hotel's demerger, brokerage B&K Securities said, "We believe the downside is limited in ITC considering the enhanced prospects from cigarette business, value unlocking from the demerger of hotels business and the likelihood of paper business returning to normal growth from next quarter. We expect cigarettes business revenues to grow by ~7.5% YoY in 3QFY25 driven by a ~5% growth in cigarette volumes."

Further, B&K said, " We are confident about our positive outlook on the stock considering the long-term annual volume growth of 4-5% we are building in the cigarette business. We should also see a close to 500 bps jump in return ratios on hotel demerger. The stock is currently trading at a P/E of 23.8x on FY27E EPS, we are maintaining our Buy rating on the stock with an unchanged target price of Rs 588, by assigning a P/E of 29x on FY27E EPS of Rs 20.4."

Meanwhile, brokerage Centrum's note said, "As argued in our thematic report, ITC would demerge the hotels business when times are ripe and that moment has now arrived. We expect in FY27E, hotel business revenues to reach Rs45.7bn with an EBITDA margin of ~35% led by strong growth in domestic demand for the hospitality sector. Based on our back of the envelope calculations we assign EV/EBITDA on FY26/27E at 30x (20% disc. to Indian Hotels) to arrive Rs36/share value (40% ITC's holding & 20% hold disc.) and would adjust Rs17/share (4% on CMP) from ITC. Overall, we have positive outlook on this development and retain Buy with TP Rs583 (implying of 31.6x P/E for Sep FY27E EPS). Risk: rising commodity inflation and local competition."

ITC has a strong record of bonus issues and dividends, while the company has split its shares once in its history of listing on BSE and NSE.

Bonus Issue: ITC has rewarded its shareholders with three bonuses. The first bonus of the 1:2 ratio was in September 2005, followed by the second bonus of 1:1 which was in August 2010. Also, ITC delivered a bonus of 1:2 in July 2016.

Dividends: Since July 2001, the company has delivered up to 29 dividends, as per Trendlyne data. In the past 12 months, the dividend payout stood at Rs 13.75 per share.

Stock Split: The only time ITC split its shares was in September 2005 in the ratio of 1:10. The face value of Rs 10 has been trimmed to Rs 1 since September 28, 2005.

ITC is one of India's foremost private sector companies and a diversified conglomerate with businesses spanning Fast Moving Consumer Goods, Paperboards and Packaging, Agri Business and Information Technology. The Company is acknowledged as one of India's most valuable business corporations with a Gross Revenue of Rs 69,446 crores and a Net Profit of Rs 20,422 crores as of March 31, 2024. ITC was ranked as India's most admired company, according to a survey conducted by Fortune India, in association with Hay Group.