Stock Check: ITC’s demerger announcement sparks investor interest: What’s next for the conglomerate?

ITC, a leading multi-industry conglomerate, has garnered significant attention following its announcement to demerge its hotel business, set to take effect on January 1, 2025. The decision, made public on December 17, 2024, has stirred the market, especially after receiving strong shareholder support earlier this year. 

As ITC prepares for this major transition, investors are closely monitoring the company’s stock performance amid recent market volatility and evolving technical outlooks.

ITC Demerger Details

The demerger of ITC Limited and ITC Hotels Limited (ITCHL) gained approval from the Kolkata bench of the National Company Law Tribunal (NCLT) in October 2024. The separation will officially take place on January 1, 2025, and shareholders will be eligible for ITC Hotels shares based on their existing holdings. ITC shareholders will receive one share of ITC Hotels for every 10 shares of ITC they hold.

Shareholders had overwhelmingly supported the proposal in June 2024, with 99.6 per cent of public institutions and 98.4 per cent of public non-institutions voting in favour of the demerger. After the demerger, ITC will retain a 40 per cent stake in ITC Hotels, while the remaining 60 per cent will be distributed to shareholders.

The companies have also set January 6, 2025, as the record date to determine eligible shareholders for the equity distribution. Additionally, ITC Hotels will pay a nominal royalty fee to ITC for the continued usage of its brand name.

ITC’s Acquisition of Hospitality Rivals

Alongside the demerger announcement, ITC also disclosed acquisitions in the hospitality sector. Through its wholly-owned arm, Russell Credit, ITC acquired a 2.44 per cent stake in EIH (Oberoi Hotels) and a 0.53 per cent stake in HLV Ltd (The Leela). Following these acquisitions, ITC now holds 16.13 per cent of EIH and 8.11 per cent of HLV, further solidifying its presence in the luxury hotel industry.

ITC’s Stock Performance Overview

Despite the positive developments, ITC’s stock has shown subdued growth in 2024, adding just over 1 per cent year-to-date, compared to the 10 per cent rise in the Nifty. In the past year, ITC’s stock gained approximately 4 per cent.

The stock faced a series of setbacks in recent months, including a 2.5 per cent decline in November and a 6 per cent drop in October. Currently trading at ₹470.65, the stock is about 11 per cent below its all-time high of ₹528.55, recorded in September 2024. However, it has rebounded 18 per cent from its 52-week low of ₹399.30 in March 2024, signalling resilience amidst recent volatility.

Amid the recent market volatility and the announcement of the demerger, investors are questioning whether ITC has fully realised its potential. Here’s what analysts say:

Technical Outlook

From a technical perspective, ITC’s outlook appears bullish, especially after a corrective phase. Ajit Mishra, Senior Vice President of Research at Religare Broking, noted that ITC has been consolidating in a range of ₹450 to ₹480, with support around the long-term moving average (200 DEMA). A decisive breakout above this zone could lead the stock toward the ₹500 level, he said.

Jigar S Patel, Senior Manager of Technical Research at Anand Rathi Shares and Stock Brokers, highlighted that after a 15 per cent correction from its peak, ITC has established strong support near the ₹450 level. “Additionally, the stock’s bullish divergence on the RSI (Relative Strength Index) further strengthens the case for an upward move, making ITC attractive for long positions in the ₹465-470 range, with a target of ₹500,” said Patel.

Fundamental Outlook

On the fundamental front, analysts remain optimistic about ITC’s long-term prospects. Macquarie has reiterated an “outperform” rating for the company, setting a price target of ₹560. While acknowledging the challenges posed by the current tax structure on cigarettes, which includes high GST rates and compensation cess, Macquarie believes ITC’s strategic approach to handling these pressures will help sustain its growth.

ICICI Securities, meanwhile, identified ITC as a top pick in the sector, noting the company’s stable cigarette volume growth despite price hikes to offset inflation. The brokerage also pointed to ITC’s market share expansion, driven by increased regulatory enforcement against illicit cigarettes and a favourable tax regime for organised players. Furthermore, ICICI highlighted the resilience of ITC’s FMCG segment, which continues to perform well despite margin pressures.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.