Today, on 5 February 2025, ITC Hotels has been removed from 22 major indexes of BSE. The decision was implemented before the market opened, causing a stir among investors. ITC Hotels, which was earlier a part of ITC Ltd., was recently listed as an independent company. When it was separated from ITC, it was temporarily included in the index of BSE and Sensex so that investors and index funds could rebalance their portfolios. But now that this balancing process has been completed, it has been removed from the index. Due to this decision, selling pressure is being seen on the company’s shares, which has led to a decline in its prices. In this article, we will understand in detail why ITC Hotels was removed from the index, what will be its impact on investors, and what the fundamentals of the company are indicating.
Why was ITC Hotels removed from the index?
The main reason for removing ITC Hotels from the Sensex and BSE index is that it was initially included only temporarily. When a company is separated from its parent organization and listed independently, it is included in the index for some time so that passive funds can balance their investments properly. Now that this process has been completed, the company has been removed from the index. Also, as per BSE rules, if a new stock does not reach the lower circuit in its initial period, it is removed from the index. ITC Hotels traded continuously after its listing and did not reach the lower circuit, due to which it was removed.
ITC Hotels Stock Performance
ITC Hotels shares were independently listed on January 29, 2025, but its listing was weaker than expectations. Its listing price on BSE was ₹188, while it was listed at ₹180 on NSE. These prices were about 30% lower than the discovery price, which was set at ₹260 and ₹270 on NSE and BSE respectively. In the last trading session, the company’s shares closed at ₹165, showing a decline of 4.16%. The market capitalization of the company at the time of listing was ₹39,126.02 crore, but now it has come down to ₹34,266.48 crore.
Effect of removal from the index
Due to its removal from the Sensex and BSE indexes, shares of ITC Hotels have come under heavy selling pressure. Index funds had to sell their holdings, which put additional pressure on the company’s stock. According to reports, due to its removal from the BSE index, ITC Hotels shares have already been sold for more than ₹400 crore, and when it is also removed from the NSE Nifty, there could be additional selling of up to ₹700 crore. The effect of this is that the stock of ITC Hotels has become more volatile in the stock market.
This decision has also affected investors. Short-term investors suffered losses as the stock fell sharply. However, this could be an opportunity for long-term investors, as the company’s fundamentals are strong and its shares are likely to recover once the market stabilizes. When a stock is included in the index, the demand for investment in it increases, but when it is removed, funds start selling it, causing a fall in prices. This is why ITC Hotels stock is seeing a decline.
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Financial Performance of ITC Hotels
If we look at the financial performance of ITC Hotels, the company has shown very strong growth over the last few years. Its average room rent (ARR) was ₹7,900 in 2019, expected to increase to ₹12,000 by 2024. This represents a growth of 51.9%, with a compound annual growth rate (CAGR) of 8.7%. Similarly, revenue per available room (RevPAR) grew from ₹5,200 to ₹8,200, reflecting an overall growth of 57.7%. Of the company’s total revenue, 52% comes from room bookings, while 40% of revenue is derived from food and beverages.
Relationship between ITC and ITC Hotels
Although ITC Ltd. and ITC Hotels are now separate companies, ITC Ltd. continues to retain its stake in ITC Hotels. ITC Ltd. holds 40% of ITC Hotels shares, while the remaining 60% shares are distributed to ITC shareholders in a ratio of 10:1. This means that any investor in ITC Ltd. who held 10 shares received 1 share of ITC Hotels. According to the company, the total acquisition cost of 100 ITC Hotels shares is estimated at ₹54,040.
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Conclusion
The decision to remove ITC Hotels from the Sensex and BSE indexes was a foregone conclusion as it was only included temporarily. After index funds and investors had sufficient time for rebalancing, it was removed from the index. This decision led to selling pressure on the company’s stock and its price declined. However, the company’s financial performance remains strong and it could be an attractive opportunity for long-term investors. ITC Ltd. still holds a 40% stake in ITC Hotels, indicating that ITC believes in the growth potential of this business. Volatility may persist in the market, but as soon as the selling pressure subsides, ITC Hotels shares can be expected to stabilize.
