ITC Hotels Demerger: Understanding Your Portfolio Changes

Hey everyone, we recently came across a post on Reddit about ITC Hotels’ shares post-demerger showing a loss in Upstox. Since many of you might have similar questions, here’s a detailed walkthrough to help you understand the changes in your portfolio.

Understanding Demergers: What They Are and Why They Happen?

A demerger occurs when a company splits into two or more separate entities to streamline operations, unlock value, or focus on core businesses. Shareholders of the original company receive shares in the newly formed entity in proportion to their existing holdings. This means your investment remains intact, but is now spread across multiple companies.

What happened in the ITC & ITC Hotels demerger?

ITC Ltd demerged its hotel business into a separate entity, ITC Hotels, effective January 1, 2025. As part of this corporate action, shareholders received ITC Hotels shares in a 1:10 ratio, meaning for every 10 shares of ITC, you received 1 share of ITC Hotels.

Why does it show a loss in my portfolio?

The cost of acquisition (COA) for ITC shares has been adjusted post-demerger. Based on the cost allocation formula, 86.49% of your original ITC investment remains with ITC, while 13.51% is allocated to ITC Hotels.

For example, if you purchased 65 shares of ITC before the demerger at an average price of ₹213.88, here’s how your holdings change post-demerger:

Scrip Quantity New Avg Price New Amount
ITC 65 ₹184.99 ₹12,024.27
ITC Hotels 6.5 ₹283.77 ₹1,702.60

Since the cost of ITC Hotels shares is derived from your original ITC investment, any difference between the cost price and the market price might show a notional loss, which is simply an accounting adjustment. This doesn’t mean you’ve actually lost money - it reflects the updated valuation based on market movements.

What happens to fractional shares?

If the demerger results in a fractional share, you won’t receive that partial share in your demat account. Instead, the fractional quantity is liquidated and the equivalent cash value is credited to your account. So, if you were supposed to receive 6.5 shares, you will get 6 full shares in your account and the value of the 0.5 fractional share will be credited in cash.

Key Takeaways:

  • Your total investment value remains the same, only the cost allocation has changed.

  • Any loss showing in ITC Hotels is due to the market price being lower than the adjusted cost price.

  • If you plan to sell, ensure you check the latest market price against your updated cost price.

We hope this helps clear up the confusion! If you have more questions about the ITC Hotels demerger or other corporate actions, drop them in the comments below.