ITC Hotels Shares Removed from Sensex: Impact, Market Reaction & Future Outlook

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ITC Hotels Shares Removed from Sensex and Other BSE Indices: Key Insights and Market Impact

Introduction

The stock market witnessed a significant shift as ITC Hotels shares were officially removed from the Sensex and other BSE indices before trading commenced on February 5, 2025. This move comes after the stock was temporarily included in these indices for portfolio rebalancing by passive funds. Investors are closely watching how this exclusion will impact ITC Hotels’ stock price and overall market dynamics.

ITC Hotels Stock Listing and Initial Performance

ITC Hotels made its debut on Indian stock exchanges on January 29, 2025, at ₹188 per share on the BSE and ₹180 per share on the NSE. However, the stock’s listing price was at a significant discount compared to its discovered price of ₹260 per share on the NSE and ₹270 per share on the BSE. Following the listing, ITC Hotels’ market valuation declined from ₹39,000 crore to ₹34,266 crore as of February 4.

Why ITC Hotels Shares Were Removed from Sensex?

  • ITC Hotels shares were included in the Sensex and other BSE indices for a temporary period to facilitate portfolio rebalancing by passive funds.
  • The removal process was dependent on whether the stock hit the lower circuit before the cut-off time of 2 PM on February 4, 2025.
  • As ITC Hotels shares did not hit the lower circuit before the deadline, the stock was officially removed from all BSE indices prior to trading on February 5, 2025.

Expected Market Repercussions

The removal of ITC Hotels shares from the Sensex and BSE indices is expected to trigger significant passive selling. Analysts predict the following market impacts:

  1. Passive Selling Worth ₹400 Crore – Index trackers are estimated to sell ITC Hotels shares worth over ₹400 crore following its exclusion from the Sensex.
  2. Additional Selling from NSE Nifty 50 Exclusion – The stock’s removal from NSE indices could lead to an additional ₹700 crore in selling pressure.
  3. Short-term Volatility – ITC Hotels’ share price could face downward pressure due to the selling spree by institutional investors and funds.

ITC Hotels Demerger Details

  • ITC Hotels was demerged from ITC Ltd, one of India’s leading conglomerates, to create a separate entity focusing on hospitality.
  • Demerger Ratio: 1:10, meaning ITC shareholders received 1 ITC Hotels share for every 10 ITC shares held.
  • Ownership Structure: ITC Ltd retained a 40% stake in ITC Hotels, while the remaining 60% was distributed to existing ITC shareholders.
  • Effective Date: January 1, 2025
  • Record Date: January 6, 2025

Financial Performance of ITC Hotels

ITC Hotels has demonstrated strong financial growth, with key performance indicators improving significantly:

  • Average Room Rate (ARR): Increased from ₹7,900 in FY19 to ₹12,000 in FY24, reflecting a CAGR of 8.7%.
  • Revenue Per Available Room (RevPAR): Rose from ₹5,200 to ₹8,200 in the same period, a CAGR of 9.5%.
  • Revenue Contribution:
    • Room Sales: 52% of total revenue
    • Food & Beverage Sales: 40% of total revenue

ITC Hotels’ Market Position and Expansion Plans

  • ITC Hotels is among the largest hotel chains in India, operating 140 hotels with 13,000+ rooms as of October 2024.
  • The company aims to expand to 200+ hotels with 18,000+ rooms by 2030.
  • Around 35% of the properties are owned, while the remaining are managed under franchise or lease models.

Stock Performance Post-Demerger

  • On February 4, 2025, ITC Hotels’ share price closed 4.16% lower at ₹164.65 per share on the BSE.
  • The stock has witnessed a declining trend, attributed to market correction and rebalancing post-demerger.
  • Despite the short-term volatility, ITC Hotels’ return on capital employed (RoCE) remains strong at ~20%, indicating a healthy financial structure.

Future Growth Prospects for ITC Hotels

  • Debt-Free Status: ITC Hotels has negligible debt, ensuring financial flexibility for expansion.
  • Operational Efficiency: Occupancy levels remain strong at 69%, with ARR and RevPAR growing at 20% and 18% YoY, respectively.
  • Luxury Hospitality Market: The demand for premium hospitality services in India is expected to surge, benefiting ITC Hotels in the long run.
  • Strategic Investments: ITC Hotels plans to enhance its luxury and premium segment offerings to cater to rising domestic and international tourism.

Conclusion

The removal of ITC Hotels from the Sensex and other BSE indices is a significant event for investors and market watchers. While short-term volatility and selling pressure are expected, the company’s strong financial performance and expansion plans indicate a promising long-term outlook. Investors should consider consulting financial experts before making investment decisions regarding ITC Hotels stock.

FAQs

1. Why was ITC Hotels removed from the Sensex? ITC Hotels was temporarily included for portfolio rebalancing but was removed after failing to hit the lower circuit before the cut-off time on February 4, 2025.

2. Will ITC Hotels’ stock price decline further after removal from the indices? The stock may experience short-term selling pressure, but its long-term growth prospects remain strong.

3. What was the ITC Hotels demerger ratio? ITC shareholders received 1 ITC Hotels share for every 10 ITC shares held.

4. What are ITC Hotels’ future expansion plans? The company aims to grow from 140 hotels to 200+ hotels by 2030, increasing its room inventory to 18,000+.

5. Is ITC Hotels a good long-term investment? With a strong balance sheet, rising ARR, and a growing luxury hospitality market, ITC Hotels presents a compelling long-term investment opportunity.

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