ITC has a ₹2,500 crore IT business hiding in plain sight and that makes the street go Yippee!

• Shares of ITC went up as much as 4% today after a report said that the company is planning to split its IT business.
• ITC Infotech’s profitability has improved sharply in the last three years to ₹450 crore, on a revenue of ₹2,500 crore at the end of March 2021.
• Check out the latest news and updates on Business Insider.

ITC is one of India’s top conglomerates with annual revenue of over ₹45,000 crore ($6 billion), three fourth of which comes from sale of cigarettes. The remaining comes from a chain of hotels, consumer products like Aashirwada Atta (wheat flour), Bingo (packaged snacks), and Yippee (instant noodles).

However, the latest reason to cheer for ITC shareholders is the technology subsidiary called ITC Infotech, which is barely spoken of in the context of the century old company. A news report from CNBC Awaaz today said that the board of directors may consider spinning out this IT business. The most-trolled stock on Indian stock exchanges surged more than 4% before cooling off.

While the company is popular for paying high dividends, the stock has barely moved in the last few years. Those holding on to the share for a year have made about 27% ⁠— while the benchmark index has surged nearly 40% and many other stocks have turned multi-baggers ⁠— and in the last five years, the stock has gained only 5%.

So, what does ITC Infotech do and how big is it?

ITC Infotech is an IT service company like Tata Consultancy Services (TCS) or Infosys only much smaller. It provides consultation and services related to automation, improving manufacturing processes as well as digital transformation services for banks, to name a few of the company’s offerings.

The boom in the technology space since the COVID-19 pandemic broke is now beyond doubt and that has reflected in the growth of ITC Infotech too. It’s profitability has improved sharply in the last three years to ₹450 crore (3% of the total) at the end of March 2021, according to a report by a research and broking firm Emkay Global dated July 25.

The latest CNBC Awaaz report, citing sources, on the possible demerger of this vertical pegged the valuation of the IT business anywhere between ₹20,000 crore to ₹25,000 crore. If that is true, a vertical that’s right now less than 1% of the revenue may be valued at nearly 9% of the market capitalisation.

While it is true that investors pay more for every dollar profit coming from a tech company these days, it is to be seen ITC Infotech ⁠— so little is known about the company ⁠— can unlock such high value for ITC’s shareholders.

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