ITC Shares Jump 3% To Hit Fresh High; What Investors Should Know

Shares of ITC on Wednesday rose 3 per cent to hit a new 52-week high level as sources told CNBC-TV18 that the process for demerging the hotel business is underway.

“ITC is exploring alternate structures for hotel business,” sources told the channel.

Following the news, ITC shares rallied over 3 per cent to hit a fresh high of Rs 480.60 on BSE.

At 11:15 am, the stock was quoting at Rs 478.60 on the NSE, higher by 2.63 per cent from the previous close. A current darling of the market, the ITC stock has already delivered a 43 per cent return in 2023 so far.

Today’s report comes days after global brokerage firm Nomura also reported that divestment of ITC’s hotels business is on the cards and that the company is evaluating various alternate structures such as REIT and JV to ensure that the divestment is cost- and tax-effective.

“Hotels business is witnessing strong improvement in ARR (average room rentals), with travel and tourism activities (including business and foreign inbound travel) back at pre-Covid levels. No large capex planned for the business, as ITC has moved to an asset right model; and, current hotel margins are sustainable over the medium term,” Nomura analyst Mihir Shah had said in a report last month.

Nomura has a target of Rs 485 on the stock while Jefferies sees the stock going up to Rs 520 in the next 12 months.

Recently, foreign broking firm Jefferies raised ITC’s target price to Rs 530 from Rs 520 on shift to asset-right strategy for hotels.

“ITC Hotels is the second largest listed chain. We apply 18x EV/Ebitda multiple pegging at a discount to our fair value for the leader, Indian Hotels at 23x. Accordingly, we raise ITC’s target price,” said Jefferies in a report dated June 27.

“Cigarette margins are expected to expand by ~120bps over FY23-25E as an increase in consumer prices should more than offset tax hikes. We use the SOTP methodology to value the ITC cigarette business at 27x Mar-25 earnings, new FMCG at 5x Mar-25 sales, Agri and paperboard businesses at 15x Mar-25 EPS, and hotels at 1x Mar-25 invested capital to arrive at a price target of Rs 520,” it said.

Up over 44 per cent so far in the calendar year 2023, ITC stock is the second-best-performing Nifty constituent after Tata Motors. In the last two years, the stock has more than doubled investor wealth.