| Company | Value | Change | %Change |
|---|
Shareholders of ITC Ltd. have received one share of the demerged hotels business for every 10 shares of the parent company they have owned.
The key question then, how much will the Hotel business be valued at?
Based on past performance and industry trends, ITC Hotels could end FY25 with ₹3,700 crore on revenue and 32% margins whereas, FY26 could end with ₹4,400 crore revenue and ₹1,450 crore in EBITDA.
ITC HOTEL FINANCIALS
| ITC Hotels (₹cr) | ||||
| Fy23 | FY24 | H1FY25 | ||
| Revenue |
2629
|
3034
|
1471
|
|
| Ebitda |
808
|
1004
|
413
|
|
| Margins |
31%
|
33%
|
28%
|
|
VALUING ITC HOTELS
Key Assumptions (₹cr)
| Fy25e | FY26e | |
| Revenue |
3680
|
4400
|
| Ebitda |
1180
|
1450
|
| Margins |
32%
|
33%
|
If you look at the multiples at which listed Hotel stocks trade, ITC should be at a discount to the leader, Indian hotels and perhaps somewhere above Chalet hotels.
Now depending on the multiple, the Street ascribes to ITC Hotels and taking off the 40% stake that ITC holds in Co, the hotel business could be worth anywhere between ₹22,000-23,500 crore, implying at ₹17-19 value of an ITC share the listing value of ITC Hotels, when it re-lists could be between ₹175 to ₹190 per share.
Additionally, we also have a reference price. The share price of ITC, when it went Ex-Hotel Business on January 6, opened at ₹26 per share lower. That makes the Last discovered price of ITC Hotels at ₹260 per share.
What also needs to be tracked however, is the impact of passive flows as per Nuvama Alternative & Quantitative Research: ITC Hotels expected to meet criteria for inclusion in MSCI Global Small Cap Indices. ITC Hotels will be part of the Nifty50 and the Sensex for three days after which it will be excluded; the stock will see passive outflow of $100 million.
“Assuming the current static price of around ₹260 remains on the day of exclusion, the passive flow for Nifty 50 will be around $100 million (current weight of 23 bps), and for Sensex, it will be around $65 million (current weight of 28 bps). If the stock hits circuit limits on day of exclusion, then exclusion will be postponed by two trading days for each instance.,” the note said.
The stock will not be included in the F&O space as it requires a minimum trading history of six months for the same.
HOTEL STOCKS VALUATIONS
Indian Hotels 37X
Chalet Hotels 25X
EIH 18X
Lemon Tree 17X
*Fy26e v/Ebitda
VALUING ITC HOTELS
| Multiple | ITC Hotels |
|
30
|
42000
|
|
28
|
39100
|
|
26
|
36200
|
|
25
|
34750
|
*Fy26e v/Ebitda
Currently, ITC Hotels operates 140 Hotels with 13,000 keys with 45% owned. They have a stated target of over 200 hotels with over 18,000 keys by 2030 with 65% salience of Managed Portfolio. ITC Hotels financials reflect the underlying improvement in the Hotel Industry in India. Over the last three years post pandemic, there has been secular growth in the revenue and operating performance of ITC’s hotel business.
The listed ITC’s Hotel business will be a zero debt co, with cash at ₹1,500 crore and low requirement of 8-10% of revenue as capex. To top that, the company is also looking at value accretive M&A/alliances.
Shares of ITC Ltd. settled 1.24% lower on Tuesday at ₹434.65. The stock is already trading ex-its hotels business.
