ITC at record after fifth day of gains amid hotel demerger buzz

ITC has been increasingly focusing on an asset-light strategy and today, slightly over half of the room inventory is through management contracts

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ITC share price gained over 2.5 percent on July 5 and hit a fresh 52-week high as sources told CNBC-TV18 that the process for demerging the hotel business is underway.

“ITC is exploring alternate structures for hotel business,” sources told the channel.

At 11:15 am, the stock was quoting at Rs 478.60 on the NSE, higher by 2.63 percent from the previous close. A current darling of the market, the ITC stock has already delivered a 43 percent return in 2023 so far.

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The development comes at a time when the hospitality sector is in the midst of an unprecedented boom despite high room rates. Earlier, ITC chairman and managing director Sanjiv Puri had said that the demerger of the conglomerate’s hotel business is “very much on the table” after the sector recovered after Covid-19.

Recently, foreign broking firm Jefferies raised ITC’s target price to Rs 530 from Rs 520 on shift to asset-right strategy for hotels.

“ITC Hotels is the second largest listed chain. We apply 18x EV/Ebitda multiple pegging at a discount to our fair value for the leader, Indian Hotels at 23x. Accordingly, we raise ITC’s target price,” said Jefferies in a report dated June 27.

The hotel business has contributed less than 5 percent to ITC’s revenues and EBIT over the last decade. Meanwhile, it has accounted for over 20 percent of ITC’s capex in the past. Investors have always been concerned as this guzzling of cash has not generated good returns.

But the conglomerate is slowly turning things around. “ITC has been increasingly focusing on an asset-light strategy and today, slightly over half of the room inventory is through management contracts, while the rest comes from owned hotels,” the report said.

In the quarter ended March 2023, ITC Limited reported a 21.4 percent on-year growth in standalone net profit at Rs 5,086.9 crore for the March quarter. Its revenue from operations (excluding excise duty) also increased 5.6 percent to Rs 16,398 crore, exceeding estimates of various analysts. Hotels business revenue for the quarter doubled to Rs 781 crore.

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