Bengaluru: Shares of Indian conglomerate ITC shares fell as much as 3.3% on Tuesday, extending a slide from the previous session, as investors baulked at the company’s plans to retain a 40% stake in its hotels business after spinning it off.
ITC said on Monday it would spin off the hotel business, separating it from its cigarettes and food units, but retain a 40% stake in the entity, with ITC shareholders holding the rest.
The company’s stock ended nearly 4% lower on Monday in its biggest one day-drop since Sept. 26, 2022, and the move a volte-face from earlier this month when the stock hit record highs on reports of a likely spinoff.
“We believe some investors may have preferred a vertical split (100% direct),” Jefferies analysts said in a note, pointing to the cash-guzzling nature of the hotel business.
The business has contributed less than 5% to ITC’s revenue and earnings before interest and taxes (EBIT) over the last decade but for over 20% of capital expenditure, Jefferies said.
ITC has over 120 hotels and 11,600 keys across more than 70 locations and competes with Tata Group’s Indian Hotels Co, which owns properties including the Taj and Marriott.
Other analysts said they would look for more details on the rationale for the new corporate structure at a management call scheduled for Thursday. The final approval for the spin-off is scheduled to be voted on at a board meeting in mid-August.
“We seek clarity on the rationale behind retaining a 40% stake, the royalty structure, any tax implications and the key criteria for gaining a strategic investor/partner in the business,” said Emkay Research.
Nomura analysts said the “not a clean de-merger” could restrict value unlocking.
ITC’s largest revenue contributor is its consumer goods business, led by cigarettes. The Goldflake brand cigarette maker will report its quarterly results next week.
(Reporting by Kashish Tandon in Bengaluru; Editing by Savio D’Souza)
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