ITC Hotels shares fall 5% after listing. Should you buy, sell or hold?

Following the completion of the much-awaited demerger of diversified conglomerate ITC Ltd to unlock value for 37 lakh shareholders, ITC Hotels shares listed at Rs 188 on BSE but hit 5% lower circuit minutes after as ITC shareholders who were not comfortable owning the hotels business tried to exit.

Given growth tailwinds in the hospitality business, favourable demand-supply mismatch, and the company's strategic expansion plans, analysts say investors should hold on to ITC Hotels shares to play the longer game.

ITC Hotels' listing price was around 31% lower than what was derived at a special price discovery session in ITC shares held earlier on January 6. The stock was assigned a value of around Rs 260 on the Nifty and about Rs 270 on BSE indices.


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For ITC shareholders, the total cost of acquisition of 100 shares of ITC Hotels comes to Rs 54,040, the company has informed shareholders.
SBI Securities said any short-term pressure on the stock price of ITC Hotels will be a good opportunity for retail/HNI shareholders to accumulate quality business in their long-term portfolio.

"Looking at the robust key addition pipeline for ITC Hotels and strong industry tailwinds, we believe ITC Hotels Ltd has potential to outperform ITC Ltd over a medium to long term period. In the short term, there is a possibility that few shareholders (especially ETFs) may have to forcefully exit ITC Hotels Ltd and this can create pressure on the stock price," the brokerage said.

Under the demerger scheme, ITC has retained a 40% stake in the new hotel entity, while the remaining 60% has been distributed to shareholders in a ratio of 10:1.

"Investors should accumulate ITC Hotels on the listing day, as the luxury hotel segment is growing significantly. Over the next one or two years, there will likely be new acquisitions and consolidation in the hotel industry," said Prashanth Tapse, Senior VP Research Analyst at Mehta Equities.

He expects ITC Hotels stock to hit a target price of Rs 300 in the next year as many hotel stocks are trading around 30 EV/EBITDA.

The demerger of ITC Ltd's hotel business unlocks value by allowing ITC to focus on its high-margin, cash-generative core segments, while the standalone hotels entity gains flexibility to capitalize on industry growth and attract strategic investors, said Deven Choksey Research.

This move enhances resource allocation, supports distinct growth trajectories for both entities, and is expected to improve valuation multiples, the brokerage said.

ITC Hotels' Average Room Rate (ARR) has increased from Rs 7,900 in FY19 to Rs 12,000, up 51.9% (CAGR growth of 8.7%). Revenue Per Available Room (RevPAR) increased from Rs 5,200 in FY19 to Rs 8,200 in FY24, up 57.7% (CAGR growth: 9.5%).

Revenue composition for FY24 reveals that 52% came from room sales, 40.0% from food and beverage, with the remainder attributable to other revenue streams.