ITC Hotels removed from Sensex and BSE indices

 On February 5, 2025, ITC Hotels was officially removed from the BSE Sensex and other associated indices. This development followed the company's recent demerger from its parent entity, ITC Ltd., and its subsequent independent listing on January 29, 2025.

Background of the Demerger and Listing

ITC Ltd., a conglomerate with diversified interests, decided to spin off its hotel division to concentrate more on its primary businesses, such as cigarettes and food products. The demerger was executed with a ratio of 1:10, meaning that existing ITC shareholders received one ITC Hotels share for every ten ITC shares they held. Post-demerger, ITC Ltd. retained a 40% stake in ITC Hotels, while the remaining 60% was distributed among its shareholders.

Upon its listing, ITC Hotels' shares were temporarily included in the Sensex and other BSE indices to facilitate portfolio rebalancing by passive funds. However, as the shares did not hit the lower circuit limit by the specified cut-off time on February 4, 2025, the BSE announced their removal from all its indices effective prior to the opening of trading on February 5, 2025.

Impact on Share Performance

Following its listing, ITC Hotels experienced a decline in its share price. The stock debuted at ₹188 per share on the BSE but closed at ₹165 on February 4, marking a 4.2% decrease. This decline was attributed to anticipated selling pressures from index trackers due to its exclusion from major indices. Analysts estimated that passive funds would need to offload shares worth over ₹400 crore following its removal from the Sensex, with an additional ₹700 crore in selling expected upon its exclusion from the NSE Nifty 50.

Future Prospects for ITC Hotels

Despite the initial challenges, ITC Hotels remains a significant player in the hospitality sector. As of October 2024, the company operated 140 hotels with approximately 13,000 rooms. It has set ambitious goals to expand its portfolio to over 200 hotels and 18,000 rooms by 2030. Financially, the company has demonstrated strong performance, with its Average Room Rate (ARR) increasing from ₹7,900 in FY19 to ₹12,000 in FY24, and Revenue Per Available Room (RevPAR) rising from ₹5,200 to ₹8,200 during the same period. The company also maintains a healthy return on capital employed (RoCE) of around 20% and holds a net cash surplus with minimal debt, positioning it well for future growth.

Frequently Asked Questions (FAQs)

1. Why was ITC Hotels removed from the Sensex and other BSE indices?

After its demerger and separate listing, ITC Hotels' shares were temporarily included in the Sensex and other BSE indices to allow passive funds to rebalance their portfolios. Since the shares did not hit the lower circuit limit by the specified cut-off time, they were subsequently removed from these indices.

2. What was the demerger ratio for ITC Hotels from ITC Ltd.?

The demerger ratio was set at 1:10, meaning shareholders received one ITC Hotels share for every ten ITC Ltd. shares they held. Post-demerger, ITC Ltd. retained a 40% stake in ITC Hotels, with the remaining 60% distributed among its shareholders.

3. How did ITC Hotels' share price perform post-listing?

ITC Hotels' shares debuted at ₹188 on the BSE but experienced a decline, closing at ₹165 on February 4, 2025. This decrease was largely due to anticipated selling pressures from index trackers following its removal from major indices.

4. What are ITC Hotels' future expansion plans?

The company aims to expand its portfolio to over 200 hotels and 18,000 rooms by 2030. As of October 2024, it operated 140 hotels with approximately 13,000 rooms. Financial indicators such as ARR and RevPAR have shown significant growth, and the company maintains a strong financial position with minimal debt.

5. How does the removal from indices affect ITC Hotels and its investors?

Removal from major indices can lead to selling pressures from passive funds that track these indices, potentially causing short-term declines in the stock price. However, the long-term impact depends on the company's operational performance, strategic initiatives, and overall market conditions.

In conclusion, while ITC Hotels' removal from the Sensex and other BSE indices has led to immediate market reactions, the company's robust expansion plans and strong financial health suggest a promising outlook for the future.