Nomura Sees ITC Hotels Beat Estimates To List At Rs 200–300 A Share

Nomura expects ITC Hotels Ltd. to list in the range of Rs 200–300 with market-cap in the range of Rs 42,500 crore to Rs 62,200 crore, which surpasses the consensus, and even the brokerage's estimates. The brokerage expects ITC Hotels to list before mid February.

The demerger of ITC Hotels came into effect on Jan. 1. ITC shares will trade ex-demerger on Jan. 6, when its share price is adjusted for the action. The ratio for share allocation is 1:10, which means shareholders of ITC Ltd. will receive one share of the soon-to-be listed hotels entity for every 10 shares of the parent company. The outstanding share capital of ITC Hotels is Rs 208 crore, Nomura said.

ITC will retain 40% ownership of ITC Hotels and rest 60% are for shareholders. The company will infuse Rs 1,500 crore into the demerged entity for planned growth, and contingency requirements. There is zero debt in ITC Hotels's balance sheet. The capital expenditure is expected to be 8–10% of revenue, the brokerage said.

The demerger will likely unlock value for ITC Hotels as it will be a pure-play hotel entity, Nomura said. ITC Hotels can embark on its next growth phase under a new structure and access to equity and debt markets for funding for future growth need.

To add to ITC Hotels' brownie points, India's luxury hotel segment has been through a re-rating in the last couple of years. Limited supply of keys in the luxury space, high structural demand, higher occupancy rates, increase in average room rates, improvement in margins and deleveraging of balance sheets are some of the reasons behind the re-rating.

The brokerage has retained its 'buy' rating on the parent company ITC Ltd. with target price Rs 575 apiece, implying an upside of 3.16% from Wednesday's closing price.

However, Nomura cut earning per share estimates by 3%, factoring in margin compression. The likely key risks for ITC can be high tax increases in cigarettes resulting in a sharp decline in cigarette volumes and EBIT, the brokerage said.