ITC Share Price Dips Ahead of ITC Hotels Demerger Record Date: Should You Buy?

The ITC Hotels demerger became effective on January 1, 2025, leading to significant developments for the cigarette-to-hospitality conglomerate. As we approach the demerger record date on January 6, 2025, ITC shares have experienced a slight dip, trading 1.39% lower at ₹482.45 on January 3. This presents a unique situation for investors interested in buying the stock before the demerger process begins.

What Does the ITC Hotels Demerger Mean for Investors?

The ITC Hotels demerger will divide ITC's business into two distinct entities, with ITC Hotels becoming a separate, publicly traded company. On January 6, ITC shares will turn ex-date for the demerger, meaning that investors who purchase ITC stock on or before this date will be eligible for ITC Hotels shares in the newly formed company. The demerger ratio is set at 1:10, meaning for every 10 shares of ITC owned, shareholders will receive one share of ITC Hotels.

This split is part of ITC's strategic initiative to focus closely on its core businesses. Analysts are optimistic about the long-term growth potential of both entities after the split, with ITC focusing on its dominant cigarette and FMCG segments and ITC Hotels growing independently in the hospitality sector.

Last Chance to Buy ITC Shares for ITC Hotels Stock

The special trading session scheduled for January 6 will facilitate the discovery of the fair price for ITC Hotels shares. As of now, today (January 3) is the final opportunity for investors to buy ITC shares in order to receive ITC Hotels stock. This is an important factor for potential investors looking to profit from the demerger.

After the demerger, ITC Hotels' valuation will be adjusted based on its stake in the new hospitality business, which is expected to be around 60%. The remaining 40% stake will remain within ITC itself. ITC Hotels will list its shares on the stock exchange within 60 days of receiving the National Company Law Tribunal (NCLT) order, which is expected to occur by mid-February 2025.

Should You Buy ITC Shares Ahead of the Demerger?

Many investors wonder whether it is the right time to buy ITC shares. Today's drop in ITC's share price is an opportunity to capitalize on the upcoming changes.

Akriti Mehrotra, a research analyst at StoxBox, suggests that buying ITC shares ahead of the demerger could be a good move for long-term investors. ITC's strong position in the cigarette industry, backed by its market dominance and pricing power, is expected to continue driving growth. Moreover, ITC's FMCG segment is poised to improve its margins, further boosting profitability in the near term.

ITC Post-Demerger: A More Streamlined Focus

Following the demerger, ITC will concentrate on its core cigarette and FMCG businesses. This shift is expected to lead to a more asset-light structure, enhancing capital efficiency and improving return ratios. While the ITC stock price will likely adjust downward by ₹20-22 per share as part of the demerger process, analysts remain optimistic about the company's prospects.

Post-demerger, analysts anticipate that ITC's cigarette business will continue strong volume growth, and its FMCG business will substantially improve profitability. These factors should contribute to ITC's long-term upside potential.

ITC Hotels: A Bright Future Post-Demerger

Analysts at Centrum Broking foresee a promising future for ITC Hotels as an independent entity. They expect the hotel business revenues to reach ₹45.7 billion by FY27, with an EBITDA margin of around 35%. The strong demand for domestic hospitality services and the company's brand equity should drive this growth. Based on its calculations, Centrum Broking has set a target price of ₹36 per share for ITC Hotels and adjusted ITC's stock by ₹17 per share after considering ITC's 40% holding.

What Will ITC Hotels' Stock Price Look Like?

The ITC Hotels stock price will be calculated on the basis of difference between the closing price of ITC shares on January 3, 2025, and the opening price discovered during the special pre-open session on January 6. Analysts expect a ₹22-25 price adjustment on January 6, reflecting ITC's 40% stake in the hotel business.

Overall, the demerger presents an interesting opportunity for ITC and ITC Hotels investors. The reorganization could lead to an optimized cost structure for ITC Hotels and a sharper focus on its core businesses. With the growing demand in the hospitality industry, ITC Hotels stands to benefit significantly.

Conclusion: A Strategic Move for Long-Term Investors

While ITC's stock price may drop slightly due to the demerger process, the long-term potential for both ITC and ITC Hotels remains strong. Investors looking for an entry point into ITC's lucrative cigarette and FMCG businesses may want to take advantage of the current dip. Analysts have a positive outlook on both companies post-demerger, making this an exciting time for ITC shareholders and potential investors.