FMCG giant, ITC Ltd is an attractive stock to buy on BSE and NSE ahead of its demerger hotels business. The largest cigarette maker in India is going to demerger its ITC Hotels Ltd business in a spin-off of 1:10 ratio. For the demerger, the effective date and record date have been fixed for the first week of January 2025. Brokerage Antique Stock Broking is the latest to recommend BUY on ITC for a new target price of Rs 563 due to the company's resilient position in a challenging environment for the FMCG sector.
ITC Demerger:
ITC has fixed its demerger record date on Monday, 6th January 2025 for the purposes of determining the shareholders of the Company to whom equity shares of ITCHL would be allotted in accordance with Clause 18 of the Scheme of Arrangement amongst ITC Limited and ITC Hotels Limited and their respective shareholders and creditors.
Earlier, both ITC and ITC Hotels acknowledged all the conditions of the scheme, and accordingly, the Appointed Date and the Effective Date of the Scheme shall be the first day of the following month i.e. 1st January 2025.
The demerger includes a share entitlement ratio of 10:1 to ITC shareholders. Meaning, the shareholders of ITC will get 1 (One) 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. Who will be these shareholders? This will be determined by the record date.
Simply put, only those shareholders will be eligible for partaking in the demerger spin-off, who holds ITC shares by the end of the record date aka January 6, 2025.
The Hotels Business of ITC has matured over the years and is well poised to chart its own growth path and operate as a separate listed entity in the fast-growing hospitality industry whilst continuing to leverage ITC's institutional strengths, strong brand equity and goodwill. Therefore, the Scheme is being proposed to segregate the hotel business from the Remaining Business of ITC and demerge it into the Resulting Company, as per the filing.
After the implementation of the merger, the shareholders of ITC will directly hold about 60% of ITC Hotels, proportionate to their shareholding in ITC, while the rest of the balance stake of 40% will be held by ITC in the hotels company.
ITC Share Price:
Currently, ITC's share price is at Rs 476.85 apiece on BSE, with a market cap of Rs 5,96,620.91 crore, making it the largest FMCG company in India. ITC's 52-week high and low is at Rs 528.55 apiece and Rs 399.30 apiece respectively. YTD, ITC stock is up by 2%. In a six-month span, the stock zoomed by over 12%.
BUY ITC Stock:
According to Antique Stock Broking, ITC is better placed in the current challenging environment backed by its a) Broad-based cigarette portfolio, b) Premium FMCG portfolio, c) Buoyancy in Hotels, and d) Improvement in the Agribusiness.
Antique's note said, "We expect the cigarette business to deliver volume/ value growth of 3%/ 6% in 3Q. In cigarettes, ITC has been restricting its aggressive peers through product innovation and launches across price points. ITC's FMCG business is expected to outperform its consumer staple peers led by better growth in branded wheat flour and its resilient premium portfolio across food and personal care."
However, the brokerage also said that sharp inflation in raw material prices should affect profit margins of both cigarettes and FMCG. The agribusiness is expected to report healthy revenue growth led by the export of rice, leaf tobacco, and value-added spices. Hotels should continue to deliver strong double-digit sales growth even on a high base. Only the paper business could continue to witness pressure in the short term as a result of dumping of Chinese paper and higher domestic wood prices.
On the valuation, Antique's note said, "We remain positive on ITC's performance driven by its resilience in cigarettes, outperformance in FMCG, and strong growth in the hotel business. We slightly tweak our earnings given the better profitability expected in hotels. We believe that the recent correction in stock price provides a good entry point. We maintain a BUY recommendation with a SoTP-based target price of INR 563 based on FY27E estimates, implying a PER of 26x."
ITC is a leading multi-business Indian enterprise with presence in FMCG, Paper, Packaging, Agribusiness, Hotels and IT, and is a global Sustainability exemplar.
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