ITC Share Price Continues To Fall For Second Day After Hotel Business Demerger

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ITC’s share price witnessed a decline for the second consecutive day following the company’s announcement of the demerger of its hotel business. On Tuesday, the stock closed at Rs. 469.35, down by 2.4% from its previous closing price.

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ITC Demerger Details and Timeline

The demerger was officially unveiled on Monday and is slated to be completed by August 14. As part of the demerger process, ITC will establish a new subsidiary called ITC Hotels Ltd., which will serve as the home for the company’s hotel business. Notably, ITC will retain a 40% stake in the new subsidiary, while the remaining 60% will be held by existing ITC shareholders.

Focus on Core Businesses

ITC’s decision to opt for the demerger aligns with the company’s strategic plan to concentrate on its core ventures, encompassing cigarettes, hotels, and packaged foods. By aiming to evolve into a “pure-play consumer goods company,” ITC seeks to strengthen its focus on these core segments.

Mixed Investor Reactions

The demerger has invoked a mixed response from investors. While some view the move positively, citing potential benefits like improved profitability and a sharper focus on core businesses, others express apprehensions regarding the impact on ITC’s share value.

Factors Contributing to Share Price Decline

Several factors have contributed to the recent dip in ITC’s share price:

Dilution of Share Value Concerns

One significant concern among investors stems from the dilution of value brought about by the demerger. With the issuance of new shares to shareholders, the new shares will represent a 60% stake in the new hotel subsidiary. This dilution raises worries among existing ITC shareholders about the impact on their overall stake in the company.

Hotel Business’s Susceptibility to Economic Fluctuations

Investors also express reservations concerning the future prospects of the hotel business, which is inherently cyclical and susceptible to economic fluctuations. The ongoing economic slowdown raises questions about the hotel business’s performance in the coming times.

Management’s Focus on Diverse Segments

ITC’s avowed goal to become a “pure-play consumer goods company” prompts concerns regarding the management’s ability to effectively juggle its diverse businesses, including cigarettes, hotels, and packaged foods. Investors question whether the management can adequately focus on each segment simultaneously.

Assessing the Long-Term Impact

While the demerger is still in its nascent stages, it remains too early to predict its precise impact on ITC’s share price in the long term. The consistent decline in the stock price on Tuesday indicates that investors are yet to be fully convinced about the potential benefits of the demerger.

As the situation unfolds and the demerger progresses, investors will be closely monitoring developments to gauge the ramifications on ITC’s share value and overall trajectory.