ITC chairman Sanjiv Puri on Thursday said the decision to retain a 40% stake in the proposed hotels entity — ITC Hotels — is the “best arrangement”,adding it would bring stability and flexibility to ensure a brisk pace of growth.
The remaining 60% of the stake in ITC Hotels will be owned by shareholders in proportion to their existing shareholding. During an analysts call on Thursday, Puri said the new entity would be free to raise its own resources and pursue the right strategies while leveraging the goodwill, brand equity and synergies of ITC.
On Monday, ITC’s board gave in-principle approval to the demerger of its hotel business. The proposal will be considered at a board meeting on August 14. The Street was disappointed that there would not be a complete spin-off. Some investors said they preferred a vertical split.
Puri said the new entity needed to be given access to goodwill, brand assets and domain expertise in whichever area was relevant for its growth. It also needed to give comfort to all stakeholders whether the partners or employees. He added the structure enables it to be an independent entity managed by a board.
The new entity is expected to have a strong debt-free balance sheet. The proposed arrangement will lead to capital allocation efficiency for ITC. Based on FY23 figures, the ROCE is expected to be improve by around 18-20%, while ROIC could improve by double digits of about 10%.
Puri said the new hotels entity will continue to follow the “asset right strategy” and expand through management contracts, particularly for its new brands like Storii and Memntos.
The demerger would help the new entity attract investors and strategic partners whose investment focus and risk profiles are aligned more sharply with the hospitality industry.
On Thursday, ITC’s scrip ended the day at Rs 464.55 apiece, 1.60% down from the previous close.