After enjoying new all time highs and a more than 40% jump this year already, the shares of Indian conglomerate ITC were left bleeding today. The reason? Its the company's recent announcement seems to have disappointed its stock investors.
ITC Stock Falls 4% After Demerger Announcement
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Ending months of speculation, India's cigarette-to-hotels conglomerate ITC has today announced that its board has approved the demerger of the hotel business. The move is aimed at unlocking value for 30 lakh shareholders of the multi-bagger stock which has been reaching newer all-time highs in recent weeks and has jumped more than 40% this year.
But this announcement has hurt India's favourite meme stock, as ITC fell 4% today. With a market cap, ITC is India's 6th biggest company as per market cap, noyl behind Reliance Industries, HDFC Bank, TCS, ICICi Bank and HUL. ITC's market cap currently is Rs 5.87 trillion while fifth-placed HUL's is Rs 6.06 trillion.
"After due consideration, the Board accorded its in-principle approval to the demerger of Hotels Business under a scheme of arrangement, with the Company holding a stake of about 40% in the new entity and the balance shareholding of about 60% of the demerged entity to be held directly by the Company’s shareholders proportionate to their shareholding in the Company," ITC said.
Following the announcement, ITC shares fell more than 4% as investors were left disappointed with ITC choosing to keep 40% stake with itself in the new subsidiary which will be called ITC Hotels, as per ET report.The demerger shall be placed for board approval on August 14.
@StockMarketapp1/twitter
How Social Media Users Reacted To The Big Announcement
How could social media not react when India's favourite meme stock witnessed a bloodbath after such a big announcement? While some Twitter users were left scratching their heads as to why the conglomerate took such a decision, some users were quick to ask whether to immediately sell the stock or not.
#ITC everyone was after its life for demerger. When it's happening stocks is down. Crazy
— Alok Agrawal (@alokagldurg) July 24, 2023
vo to thik hai ye batao #ITC 500 wali tshirt pahen le ya #nifty 20000 wali k sath pack karke rakh de???
— Ajay (@aazayy1990) July 24, 2023
So is it better to exit ITC right now bro.?
— #Sooryavanshi (@Hai2678) July 24, 2023
And why would ITC shareholders agree to keep pumping equity into a cash hungry asset heavy business
— Mickey Mouse (@MickeyM07112347) July 24, 2023
The accounting entries for this #ITC demerger is going to be extremely interesting! It is not often that companies demerge undertakings into another company with 40% of the shares being issued to themselves! There could be some tax complications as well! pic.twitter.com/tW32pHS2Up
— Ajay Rotti (@ajayrotti) July 24, 2023
— Curious Shubham - NISM Certified (@Curious_Shubh) July 24, 2023Exiting ITC
Time to book short term profit https://t.co/mq5qBhPkUo
@AnilSinghvi_
— Rajeev Ranjan (@rranjan30) July 24, 2023
Sir, what to do with ITC..
HOLD OR ......
Ab nifty ko itc ka kurbani dena padega. 20k door hai
— Baibhav Mishra (@mishra_baibhav) July 24, 2023
More Details About The Demerger
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The proposed re-organisation through de-merger would ensure the continued interest of the company in the hospitality business, provide long-term stability and strategic support to the new entity in its pursuit of accelerating growth and sustained value creation as also enable leveraging of cross synergies between the Company and the new entity.
The demerger will help the new entity in attracting appropriate investors and strategic partners/ collaborations whose investment strategies and risk profiles are aligned more sharply with the hospitality industry, ITC said.
In addition, it will unlock the value of the hotel business for the company’s shareholders by providing them with a direct stake in the new entity along with an independent market-driven valuation thereof, the report mentioned.
This move by ITC also reinforces the sharper capital allocation strategy put in place in recent years, manifesting in the pivot to an ‘asset-right’ strategy in the Hotels Business, ITC said.
"The proposed demerger of the Hotels Business is a testament to the Company’s commitment to creating sustained value for stakeholders. The Creation of a hospitality-focused entity will engender the next horizon of growth and value creation by harnessing the exciting opportunities in the Indian hospitality industry. In the proposed reorganization, both ITC and the new entity will continue to benefit from institutional synergies," ITC chairman Sanjiv Puri said.
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