In FY23, hotels contributed ~540 cr to ITC’s operating profits, just over 2% of the company’s total profits (~24000 cr). If we compare it revenue-wise, it is 2500~ cr vs 70000 cr (3.5%)
Mind you, this is a business that is highly capital inefficient and there will not be any incremental capex. The value of this business is not going to be significant irrespective of the valuation method one follows (max 15-25 on a per-share basis). In the grand scheme of things, it doesn’t really matter if they demerge it or delist it or sell off the assets for cash. The investment bankers stand to benefit here from this demerger and there is not much for other stakeholders
Hotels has always been viewed as a problem by ITC shareholders and everybody wanted it to be thrown out. Now that the share price has cooled off by some 3-4% today post-announcement, all of a sudden people are complaining that this is unfriendly for the minority shareholders (as if the management cared about our views before), there will be holding company discounts, BAT will sell-off their stake etc…Really want to understand why were these things not up for debate earlier. What part of the information was unknown or a negative surprise here? BAT selling pressure after demerger was never a surprise, holding company discount was also going to come into the picture. This is just panic selling and there is no logic to explain a 4% fall in stock price for a business which anyway was never contributing to the same number in ITC’s share price
Stock picking is an act of arrogance as many say. “Where you see threats, I see opportunities” is what every investor thinks of. Not gonna debate if the current mcap of ~6 lakh crore is fair or not but why is nobody talking about how drastically the return ratios will improve post-demerger? This definitely would have been the topic of discussion had the stock price shot up 4% today. Waiting for brokerage reports on how the ROE and ROCE will shoot up say 30% once the asset-heavy business (~8000 cr assets) of hotels is demerged. That narrative will be used to justify if/when the stocks price goes up
To most retail investors (including me), reading all the news coverage and everybody saying this is good/bad is just a waste of time. This is nothing but noise for a long-term shareholder who would’ve anyway known how insignificant hotels is in the big picture. Now that I have used up 20 minutes of my time writing this, I would advise folks not to waste more time on this topic
Disc – invested
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