After a long-drawn process, January 6 marks the record date for ITC Hotels’ demerger. Announced in July 2023, the restructuring will see ITC retain a 40% stake in its hotel business, with the remaining 60% directly held by shareholders through a rights entitlement. Shareholders will receive one ITC Hotels share for every 10 ITC shares they own.

ITC Hotels currently contributes 4% of ITC’s total revenue and 2.5% of its EBIT but accounts for 14% of the company’s total assets. This makes the demerger accretive to ITC’s return on capital employed (ROCE). The hotel chain operates 140 properties with around 13,000 keys, comprising 45% owned and 55% managed hotels. By FY24, occupancy levels stood at 69%, with plans to scale to over 200 hotels and 18,000 keys by 2030, focusing on a 65% managed portfolio.

Post-pandemic, the hotel business has seen steady growth. In H1FY25, ITC Hotels reported revenue of ₹1,471 crore with EBITDA margins of 28%. The revenue mix includes 52% from room bookings, 40% from food and beverages, and 8% from other services. Financially robust, ITC Hotels is a zero-debt company with ₹1,500 crore in cash reserves. Additionally, only 20% of its inventory operates at 75% of potential occupancy, highlighting significant growth potential. Its capital expenditure needs are minimal, at 8-10% of revenue, and the company is exploring value-enhancing mergers and acquisitions.

Projections indicate ITC Hotels could reach ₹3,680 crore in revenue by FY25 and ₹4,400 crore by FY26, with EBITDA margins improving to 32-33%. Based on industry valuation multiples, ITC Hotels is expected to trade at a discount to Indian Hotels (37x FY26 EV/EBITDA) but higher than Chalet Hotels (25x FY26 EV/EBITDA). This places its equity value between ₹36,200 crore and ₹42,000 crore.

ITC’s 40% stake in the hotel business, factoring in a 35% holding company discount, is estimated at ₹14,100-15,250 crore. The 60% directly held by shareholders could be worth ₹22,000-23,750 crore, translating to an added value of ₹17-19 per ITC share. When ITC Hotels lists independently, its share price is expected to range between ₹175 and ₹190.