British American Tobacco (BAT), which owns 29.1% stake in ITC, has given its in-principle approval to the diversified conglomerate’s decision to demerge its hotels business to unlock value.
“We are aware of ITC’s intention to demerge its hotels business. In principle, we are supportive of this, though recognise it is subject to a number of approvals and will take some time to complete,” a BAT spokesperson told FE.
The scheme of demerger is subject to necessary approval from shareholders, creditors, stock exchanges, Securities and Exchange Board of India, National Company Law Tribunal and other regulatory authorities, as required.
In the past, BAT and ITC have had a stormy relationship, when way back in 1995, the UK-based tobacco firm had sought the then ITC chairman KL Chugh’s resignation, expressing a lack of confidence in him. Reportedly, BAT was then opposed to some of ITC’s diversification plans and a series of allegations and counter-allegations were levelled by both the parties against each other. BAT had then even tried to raise its stake in ITC, but this could not be possible because the government does not allow foreign direct investment in tobacco.
As earlier reported, the board of directors of ITC earlier this week approved the demerger of its hotels business. According to the share entitlement ratio, for every 10 shares of ITC, a shareholder will get 1 share of ITC Hotels.
Before this, on July 24, ITC’s board had given an in-principle approval to the demerger of the hotel business. The company will hold 40% in the new entity — ITC Hotels — while the remaining shareholding of 60% will be held by ITC’s shareholders in proportion to their holdings in the company.
ITC’s share capital is around Rs 1,246.5 crore while the pre-demerger share capital of ITC Hotels stands at Rs 83 crore.
As per the share entitlement ratio of 10:1, ITC Hotels will issue fresh shares aggregating Rs 125 crore to ITC’s shareholders, taking the total share capital of the new entity to about Rs 208 crore (Rs 83 crore + Rs 125 crore).
The indicative timeline for listing of ITC Hotels is around 15 months.
ITC chairman Sanjiv Puri had earlier observed the decision to retain a 40% stake in ITC Hotels is the “best arrangement”, adding it would bring stability and flexibility to ensure a brisk pace of growth. Puri said the new hotels entity would be free to raise its own resources and pursue the right strategies while leveraging the goodwill, brand equity and synergies of ITC.
Replying to the shareholders during the company’s annual general meeting, Puri had reiterated that the continued interest of ITC in ITC Hotels would be good for the new entity going forward.
“Under this scheme of arrangement, synergies with the food business of ITC and hotels will be retained. ITC Hotels will have a debt-free strong balance sheet,” Puri had said, adding the board of the new entity would decide on the future capital requirements.
ITC’s hotels business, which comprises 120 hotels with a total of 11,600 rooms, had reported gross revenues of Rs 2,585 crore in FY23 and earnings before interest and tax (ebit) of about Rs 532 crore. In comparison, market leader Indian Hotels had clocked in revenues of Rs 5,810 crore and net profit of around Rs 1,000 crore.
On Thursday, ITC’s shares closed down 2.04% at Rs 440.85.