FMCG giant stock ITC witnessed mild gains on December 18 after the company made a big demerger update of its much-awaited hotels business, and also announced the acquisition of EIH and HLV. ITC shares hold above Rs 470 levels, and its weekly performance is up by 1.4%. Ahead of demerger in January, is it the right time to buy ITC stock?
ITC Share Price:
After market hours of December 18, the stock finished at Rs 470.65 apiece, up by 0.2% on BSE with a market cap of Rs 5,88,821.36 crore. The stock's 52-week high and low is at Rs 528.55 apiece and Rs 399.30 apiece respectively. However, year-to-date, ITC stock is up by nearly 1%.
ITC Demerger:
On Wednesday, as per the regulatory filing, both ITC and ITC Hotels Limited (ITCHL) have mutually agreed to fix Monday, 6th January 2025 as the Record Date to determine the shareholders of the Company to whom equity shares of ITCHL would be allotted by Clause 18 of the Scheme of Arrangement amongst ITC Limited and ITC Hotels Limited and their respective shareholders and creditors under Sections 230 to 232 read with the other applicable provisions of the Companies Act, 2013.
ITC is all set to demerge its hotel business which will be in the ratio of 1:10. Because as part of the merger process, 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. After the completion, ITC's stake will be reduced. The shareholders of ITC will hold about 60% of ITC Hotels directly, which is proportionate to their shareholding in ITC. ITC will hold a balanced stake of about 40%.
In its latest report, global brokerage Jefferies said, "ITC Ltd (covered by JEF India Consumer team) is going to demerge its Hotel biz in 4QFY25. We met with ITC Hotels' management to understand the biz/growth levers ahead. The Rev/EBITDA/room inventory profile of Co stacks it as a key #2 player in the hotel space. Co targets growth from greenfield commissioning in recent years, scaling up of management contracts, and premiumisation of portfolio amid Industry tailwinds; it will boast of strong BS post demerger (Rs10-15bn net cash)."
Going ahead, Jefferies expects ITC's footprint to grow ~1.4x in the next 4-5 years. ITC has a pipeline of 46 Hotels with 4300 Keys (primarily Managed hotels); post addition, ~65% of the mix will be Managed vs ~55% currently
ITC Acquisition Update:
Further, ITC has also intimated exchanges that it has acquired 2.44% of the share capital (comprising 1,52,32,129 Equity Shares of 2/- each) of EIH Limited ('EIH') and 0.53% of the share capital (comprising 34,60,829 Equity Shares of 2/- each) of HLV Limited ('HLV'), from Russell Credit Limited, a wholly owned subsidiary of the Company.
Post the acquisition, ITC's shareholding in EIH and HLV aggregates 16.13% and 8.11%, of their paid-up share capital, respectively.
Should You BUY ITC Shares?
Jefferies stated SOTP-derived price target on ITC is of Rs550 (cigarette business at 25x Sep-26e earnings, new FMCG at 5x Sep-26e sales, Agri and paperboard businesses at 15x Sep-26e EPS, and hotels at 18x EV/ Ebitda). Key risks include sharp rise in tobacco taxation and adverse regulations.
Also, brokerage Motilal Oswal has recommended BUY for a target price of Rs 575.
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. Currently, ITC's dividend yield is about 2.95%.
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.
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