ET Intelligence Group: For a business that contributes 4% of the total revenues and 2.5% of the profits of its parent company, ITC, the hotel unit's demerger is attracting disproportionately high investor interest. For every 10 shares of the parent company ITC, shareholders will get one share of the demerged entity ITC Hotels.As per the merger scheme, ITC itself would retain 40% of the hotel shareholding, and the remaining 60% would be held by the existing ITC shareholders.ITC's share price discovery during the special pre-open session came in at ₹455 - ₹27 lower than its previous close, following adjustments to reflect the ITC Hotels demerger. This price of ₹27 came to be higher than the range of ₹15-23 that market analysts had expected when the demerger was first announced in July 2023.ITC Hotels is expected to list by mid-February with analysts pencilling the valuations of the company to be around 25-30 times its estimated EV/Ebitda for FY26. This is around 20% lower than the market leader Indian Hotels, which owns the Taj chain.Based on the consensus of analyst views, the listing price is expected to be in the range of ₹125 to ₹175."Based on the peer valuation expectation in the luxury hotel space, we are expecting the listing to be anywhere in the range of ₹100-125 per share on a conservative basis," said Prashanth Tapse, senior VP (research) at Mehta Equities.117037567ITC Hotels will be dropped from the Sensex and Nifty indices three business days after its listing date. This exclusion may result in initial selling pressure on the stock as was witnessed in the case of the listing of Jio Financial Services in August 2023, which demerged from Reliance Industries.However, the moot question for ITC's shareholders is whether the ITC Hotels stock is worthy of long-term investment. It seems to be so. The demerger has been well-timed to coincide with the overall recovery in the hospitality sector in India. Operating over 140 hotels across 90 destinations, ITC Hotels is the second-largest hospitality player in India.It is a zero-debt company with a cash infusion of ₹1,500 crore from the parent as part of the merger scheme. Considering the company earns 60% of its revenues in the second half, the estimated revenues for FY25 are likely to be ₹3,642 crore with Ebitda (at 33% margin) of ₹1,200 crore. Around 20% of its inventory is less than five years old - operating at 75% of potential occupancy levels.Over the next five years, the company targets 200+ hotels with 18,000+ keys with two-thirds of the portfolio being managed hotels. Consequently, it targets 2.5x growth in management fees by FY30.Incidentally, the demerger of ITC Hotels augurs well for ITC's investors as the hotel division was using up nearly 18% of ITC's capital investment at a time when capital misallocation has been the biggest grudge of ITC's investors.
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