India`s ITC extends slide on plan to keep hotel business stake post spinoff
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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 new entity, with ITC shareholders holding the rest.
The company's stock ended nearly 4% lower on Monday.
"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.
"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.
