ITC chairman Sanjiv Puri on Friday said the proposed demerger of its hotel business will sharpen capital allocation and improve asset efficiency ratios for the diversified conglomerate.
The board of the cigarette-to-soap maker on July 24 gave its in-principle approval to the demerger of its hotel business with the company holding a stake of about 40% in the new entity– ITC Hotels–and the balance shareholding of about 60% to be held directly by the company’s shareholders proportionate to their shareholding in the company.
“The continued interest of ITC in the new entity will provide long term stability and instill a sense of assurance among partners, investors and employees, while enabling the new entity to leverage ITC’s institutional strengths including the timeless goodwill, world-class brands and governance processes,” Puri said during the company’s 112th annual general meeting.
“For ITC, the reorganisation will sharpen capital allocation, improve asset efficiency ratios, unlock value for its shareholders as well as enable leveraging of institutional synergies,” he said, adding thus, the proposed reorganisation will enable the business to architect the next horizon of growth as a pure play hotels entity with a strong balance sheet and healthy pipeline, especially when the industry is poised for robust growth.
Puri said the ministry of corporate affairs has recently approved the name, ITC Hotels, for the new hotel entity.
Notably, after the company’s decision to retain a 40% stake in the proposed hotels entity, some investors said they preferred a vertical split.
Replying to the shareholders during the AGM, the chairman reiterated that the continued interest of ITC in ITC Hotels would be good for the new entity going forward. The new entity needed to be given access to goodwill, brand assets and domain expertise in whichever area was relevant for its growth.
“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 said, adding the board of new entity would decide on the future capital requirements.
The proposal of the demerger of the hotel business will be considered at a board meeting of ITC on August 14.
Puri said the conglomerate’s hotels business recorded a strong performance for FY23 with the doubling of segment revenue. EBITDA margins expanded by 930 basis points over FY20. “The business is well poised to capitalise on the significant growth opportunity, given its distinctive position in India’s tourism landscape. The business’ unique value proposition has been built on the strength of its iconic properties, signature cuisines, best-in-class service and ethos of Responsible Luxury,” he said.
On ITC Infotech, the company’s subsidiary, the chairman said it has made encouraging progress in recent years and is dialling up investments to be future-ready. “The company continues to play a pivotal role in enabling clients to accelerate digital transformation, optimise costs and enhance operational efficiencies,” he added.
Last year, ITC Infotech acquired a substantial portion of PTC Inc’s PLM professional services business. On Friday, ITC Ltd’s scrip ended the day at Rs 448.70 apiece, down 0.61% from the previous close.