In a significant move, ITC Hotels has been removed from 22 BSE indices, including the Sensex, leading to substantial share sales by index trackers. This transition marks a crucial phase for the company, which was demerged from ITC Ltd. The removal from indices follows the company’s separate listing on January 29, 2025. While this development has triggered short-term volatility, analysts remain optimistic about ITC Hotels’ long-term growth, given the rising demand for premium accommodations and strong operational performance.
Impact of ITC Hotels’ Removal from Sensex and BSE Indices
Before the market opened on February 5, ITC Hotels was dropped from 22 BSE indices, including the Sensex. This removal has led to index funds offloading significant shares, causing a ripple effect in the stock market.
The company was initially included in the indices temporarily to facilitate portfolio rebalancing by passive funds. However, as ITC Hotels did not hit the lower circuit by the cut-off time, it was officially excluded from the indices before Wednesday’s trading session began.
Stock Performance and Market Reaction
ITC Hotels’ shares last closed at Rs 165, reflecting a 4.16% decline. Index funds had to sell shares worth over Rs 400 crore due to the stock’s exclusion from the Sensex. With its removal from the Nifty as well, another Rs 700 crore worth of selling is anticipated, which could further impact the share price in the short term.
At the time of its debut, ITC Hotels’ shares were listed at Rs 180 on NSE and Rs 188 on BSE, giving it a market valuation of Rs 39,126.02 crore. However, the valuation has since dropped to Rs 34,266.48 crore.
Under the demerger plan, ITC Ltd retained a 40% stake in ITC Hotels, while the remaining 60% was distributed to ITC shareholders in a 10:1 ratio. The total acquisition cost for 100 shares of ITC Hotels is estimated at Rs 54,040.
Strong Operational Growth Despite Market Volatility
Despite market fluctuations, ITC Hotels has demonstrated robust operational performance. Its Average Room Rate (ARR) increased significantly from Rs 7,900 in FY19 to Rs 12,000 in FY24, reflecting a 51.9% rise (CAGR of 8.7%). Similarly, its Revenue Per Available Room (RevPAR) surged from Rs 5,200 to Rs 8,200 during the same period, representing a 57.7% growth (CAGR of 9.5%).
Revenue distribution remains strong, with room sales contributing 52% to total revenue, while food and beverage services accounted for 40%. This diversified revenue stream strengthens the company’s financial foundation and positions it for sustainable growth.
Industry Outlook and Growth Prospects
The hospitality industry is experiencing a positive uptrend, with increasing consumer demand for premium accommodations. Industry analysts foresee ITC Hotels benefiting from this robust cycle, as limited fresh capacity is being added, thereby reducing competition.
Additionally, ITC Ltd continues to provide brand support and governance, ensuring a smooth transition for the demerged entity. Analysts predict that ITC Hotels’ long-term prospects remain strong, as it carves out its niche in the high-end hospitality sector.
Challenges and Future Considerations
While ITC Hotels has strong fundamentals, its exclusion from the indices could result in short-term stock volatility. Investors may witness fluctuations as index funds continue offloading shares, but long-term investors could view this as a buying opportunity.
Furthermore, the company must focus on expanding its market presence, enhancing customer experience, and leveraging its brand strength to maintain steady growth. Strengthening digital marketing strategies and expanding loyalty programs could also help drive consistent revenue.
Investor Takeaway
For investors, ITC Hotels’ removal from the Sensex and BSE indices might initially seem concerning, but the company’s operational performance and industry outlook paint a promising picture. Short-term volatility could provide entry opportunities for long-term investors who believe in the hospitality sector’s growth potential.
With ITC Ltd continuing to support its brand presence and governance, ITC Hotels remains well-positioned to capitalize on rising consumer demand for premium accommodations. As the company refines its strategies, investors can expect steady long-term growth.
ITC Hotels’ removal from Sensex and BSE indices has led to market turbulence, but its long-term growth potential remains strong. With a proven track record of operational excellence, increasing ARR and RevPAR, and a solid market position, ITC Hotels is poised to navigate challenges and capitalize on future opportunities. Investors should focus on long-term prospects while monitoring short-term market trends closely.
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