By Abhay Ray 
Introduction
ITC Hotels was removed from 22 BSE indices before trading started on Wednesday, February 5. The company, which was spun off from ITC, had been temporarily included in the Sensex and other BSE indices to help passive funds with portfolio rebalancing. This exclusion came after the company did not meet the necessary criteria to remain in the indices.
Why ITC Hotels share was removed from BSE indices
The BSE on Tuesday notified that ITC Hotels will be removed from all the indices as it does not hit the lower circuit till the cut-off time. “As ITC Hotels did not hit the lower circuit till the cut-off time, the company will be dropped from all BSE indices effective prior to the open of trading on Wednesday,” the exchange said in a notice. On February 4, ITC Hotels shares closed 4.16% lower at ₹164.65, with a market capitalisation of ₹34,266.5 crore, in an otherwise positive broader market. During the session, the hotel stock declined as much as 4.97% to hit a low ₹163.25.
Share Price Performance and Impact of Exclusion
ITC Hotels’ stock closed at ₹165 on February 4, marking a 4.16 per cent decline. Passive funds tracking the Sensex and BSE indices were required to sell ITC Hotels shares worth approximately ₹400 crore, with an additional ₹700 crore of selling pressure anticipated from its exclusion from the NSE Nifty.
Despite short-term volatility, analysts believe the company is well-positioned within the hospitality sector. The removal from key indices, while pressuring the stock price in the immediate term, does not alter ITC Hotels’ operational fundamentals.
About ITC Hotels Demerger
ITC launched its hotels business way back in 1975 with the acquisition of a hotel in Chennai which was rechristened ‘ITC-Welcomgroup Hotel Chola’ (now Welcomhotel) to earn high levels of foreign exchange,create tourism infrastructure and generate employment. Over the years, it has emerged as second biggest player in the hotel space after Tata group-owned Indian Hotels. Last year, the conglomerate decided to demerge hotel business and list it as a separate entity to allow the hospitality business to focus on growth and maximise shareholder returns.
Under the scheme of demerger, ITC shareholders received one ITC Hotels share for every 10 shares they own in the company, with the cigarettes-to-FMCG-to-hotels conglomerate retaining a 40% stake in the demerged entity. British American Tobacco (BAT), which owns 25% stake in ITC, got 15% stake in the hotel business, while the balance shareholding were distributed among existing shareholders in proportion to their holdings in the company. With a strong debt-free balance sheet and ₹11,000 crore of total assets (including ₹1,000-1,500 crore of cash and cash equivalents), ITC Group today operates a bouquet of 6 brands — ITC Hotels, Storii, Mementos, Welcomhotel, Fortune, and WelcomHeritage – distributed across segments. ITC Hotels and Storii cater to luxury segment, WelcomeHotel in upper upscale, and Fortune in mid to upscale space. Storii is a boutique hotel and WelcomHeritage is a heritage property. Its current portfolio includes 140 properties with 13,000 rooms, out of which 45% are owned, and 55% are under management contracts. Around 80% of the owned room inventory is in metros (distributed evenly in top 6 cities). Going ahead, the group aims to increase inventory to 18,000 rooms in the next 4-5 years, and 200 hotels from 140 currently. In the past 2 years, the company has managed to achieve its target of opening 1 hotel per month and expects similar trajectory in next 24 months.
ITC Hotels’ Performance
But let’s not write off ITC Hotels just yet. Despite the index drama, the company has been showing some impressive stats:
- Average Room Rate (ARR) skyrocketed from ₹7,900 in FY19 to ₹12,000 in FY24 – that’s a 51.9% increase!
- Revenue Per Available Room (RevPAR) jumped from ₹5,200 to ₹8,200 in the same period.
- With 140 hotels and about 13,000 keys, ITC Hotels is eyeing an expansion to 200+ hotels and 18,000+ keys by 2030.
These numbers paint a picture of a company that’s not just surviving, but thriving in a competitive landscape.
The Market’s Reaction
The market’s response to ITC Hotels’ index removal was as varied as the items on a hotel breakfast buffet. Some investors saw it as a buying opportunity, while others hit the sell button faster than you can say “check-out time.” One analyst, speaking on condition of anonymity, quipped, “It’s like ITC Hotels checked into the Sensex for a night and got an early morning wake-up call to leave. But remember, in the hotel business, it’s all about location, location, location – and ITC has some prime spots in its portfolio.”
Conclusion
Analysts see ITC Hotels benefiting from a robust industry cycle, with limited fresh capacity being added and rising consumer demand for premium accommodations. The parent ITC will continue to provide brand support and governance, while its own return profile is expected to improve after spinning off the capital-intensive hotel business. While near-term volatility in ITC Hotels shares may persist, analysts remain optimistic about the companys long-term prospects as it carves out its place in the hospitality industry.
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