ITC Hotels Demerger: Last Chance to Buy ITC Shares Before January 6

The record date for the highly awaited ITC Hotels demerger is set for January 6, making today the final opportunity for investors to purchase ITC shares if they want to be eligible for ITC Hotels shares after the demerger. As part of this demerger arrangement, shareholders will receive one equity share of ITC Hotels for every 10 ITC shares held. ITC will maintain a 40% stake in ITC Hotels, with the remaining 60% distributed to existing shareholders based on their proportionate holdings.

The share price of ITC Hotels will be determined during a special pre-open session on January 6. The price will be calculated by subtracting ITC’s January 3 closing price from the opening price established during the special session. After this, ITC Hotels share price will remain fixed in the NSE and BSE indices on the listing day and for the next three trading days. If the stock hits its circuit limits, its exclusion from the indices will be postponed by an additional two trading days each time this occurs. For example, if ITC Hotels lists on February 10, 2025, the mandatory exclusion from the indices would occur on February 13, 2025, according to Nuvama Alternative & Quantitative Research.

However, investors will not be able to trade this placeholder version of ITC Hotels once the pre-open session concludes. Actual trading will begin only after the stock is officially listed on the exchanges.

For passive fund managers, there is no need to make any immediate adjustments to their ITC holdings, as index weightages will automatically reflect the updated free-float market capitalization of constituents, including ITC Hotels. The real buying or selling of shares will happen when ITC Hotels begins trading and is subsequently excluded from the index after three trading days.

In terms of global indices, ITC Hotels is expected to qualify for inclusion in the MSCI Global Small Cap Index, with ITC remaining part of the MSCI Standard Index. Once ITC Hotels is listed, the hotel business will transition to the Small Cap Index. According to FTSE’s current methodology, ITC Hotels will be removed from its indices if it fails to list within 20 working days after the demerger record date.

The official listing date for ITC Hotels has not yet been disclosed, though market experts predict that it may take a few weeks to secure regulatory approval. Given that ITC Hotels is being carved out from a major corporate giant, Abhilash Pagaria, Head of Nuvama Alternative & Quantitative Research, anticipates the listing process will be expedited, potentially occurring within a month. Nomura, a Japanese brokerage, projects that ITC Hotels could list by mid-February.

Recent examples of spin-offs provide context for the possible timeline: Jio Financial Services listed 33 days after its record date, Piramal Pharma took 45 days, and NMDC Steel required four months to list after its demerger.

Regarding the anticipated listing price for ITC Hotels, Nuvama estimates the initial share price could fall between ₹150 and ₹175. The company is expected to command a premium valuation after listing, benefiting from improved price discovery. However, there could be a supply overhang due to potential exits from large shareholders such as BAT (approximately 15% stake) and SUTTI (around 5% stake). Sharekhan’s assessment aligns closely with Nuvama's, predicting a price range of ₹150 to ₹170 per share. On the other hand, Nomura holds a more optimistic view, forecasting a listing price between ₹200 and ₹300, which would translate to a market capitalization of ₹42,500 crore to ₹62,200 crore.

ITC’s share price is projected to drop by ₹22 to ₹25 on the ex-date, reflecting its retained 40% stake in the hotel business and accounting for a 20% holding discount. This adjustment underscores the impact of the demerger on ITC’s valuation as the hotel segment transitions to an independent entity.