ITC on Monday said that it will demerge its hotel business from the rest of the company, separating it from its cigarettes and food businesses. ITC will incorporate the wholly-owned subsidiary ITC Hotels Ltd, if the demerger is given final approval by the board during its meeting on August 14. The new entity will handle its hotels and hospitality business.
The company will hold a stake of about 40 per cent in the new entity and the balance shareholding of about 60 per cent will be held directly by the Company’s shareholders. “After due consideration, the Board accorded its in-principle approval to the demerger of Hotels Business under a scheme of arrangement, with the Company holding a stake of about 40 per cent in the new entity and the balance shareholding of about 60 per cent to be held directly by the Company’s shareholders proportionate to their shareholding in the Company,” it said in a regulatory filing.
“The proposed demerger of the Hotels Business is testament to the Company’s commitment to creating sustained value for stakeholders. Creation of a hospitality focused entity will engender the next horizon of growth and value creation by harnessing the exciting opportunities in the Indian hospitality industry. In the proposed reorganization, both ITC and the new entity will continue to benefit from institutional synergies,” said Sanjiv Puri, Chairman, ITC Limited.
The Board noted that its hotels business has matured over the years and is well poised to chart its own growth path as a separate entity with “sharper focus on the business and an optimal capital structure, whilst continuing to leverage ITC’s institutional strengths, brand equity and goodwill”. “The demerger will help the new entity in attracting appropriate investors and strategic partners/ collaborations whose investment strategies and risk profiles are aligned more sharply with the hospitality industry. In addition, it will unlock value of the Hotels Business for the Company’s shareholders by providing them a direct stake in the new entity along with an independent market driven valuation thereof,” ITC said.
Reacting on the same, Prashanth Tapse, Sr VP Research Analyst, Mehta Equities Ltd, said, “ITC’s hotel business demerger approval may unlock shareholder value with a direct stake in the new entity, but it disappoints some street expectations. The proposed hospitality-focused entity aims for growth and value creation in the Indian hospitality industry, benefiting both ITC and the new entity through institutional synergies.”
ITC Hotels group currently has over 120 hotels and 11,600 keys across 70+ locations. ITC’s hotel business has delivered growth and margin expansion in FY 2022-23 and is poised to sustain the growth momentum.