– By Rajesh Mehta
Shareholders to gain as many factors to contribute to the robust growth of the new subsidiary.
The long-awaited demerger announced by ITC is a well-structured demerger plan that ensures the best interests of its shareholders while providing stability and growth opportunities for the Hotel Business. Under the scheme of the arrangement, the hotel division will be hived off into a new wholly owned subsidiary, with ITC retaining a 40 per cent stake, and the remaining 60 per cent share will be directly held by the company’s shareholders based on their holdings.
The demerger process marks a crucial step in ITC’s pursuit of the ‘ITC Next’ strategy under the leadership of its Chairman Sanjiv Puri. In alignment with this strategy, the demerger emphasizes sharper capital allocation, unlocking value and future growth. With a focus on better profitability and enhanced competitiveness, the demerger aligns with ITC Next’s principles of agile operations, consumer centricity and innovation.
Morgan Stanley has lauded the demerger as a positive development aligning with previous indications from the management. The significant step will allay concerns about capital allocation. Indeed, the demerger will also enhance the capital efficiency ratios of the diversified conglomerate. This strategic move is a testament to Sanjiv Puri’s vision to build robust foundations for future drivers that will drive agile and competitive growth. The demerger will also unlock value for shareholders, providing them with a direct stake in the new entity. In the long run, shareholders can expect promising returns from the new entity because of the following reasons.
By retaining a 40 per cent stake, ITC will provide stability to the new entity and will continue to provide its enterprise strength and strategic support. This intelligent approach will enable the hotel business to chart its own path, with a sharper focus on improving margins, profitability, and overall competitiveness. Leveraging ITC’s brand equity and goodwill, the new entity will be better positioned to attract suitable investors and strategic partners to craft its next horizon of growth.
Notably, ITC Hotels has achieved a remarkable milestone by recording its highest-ever revenue of Rs 4000 Crore in FY23. Furthermore, the company is in a phase of expansion, with ambitious plans to launch 40 new properties. Despite facing two years of pandemic-induced disruptions, the Indian hospitality industry has demonstrated a remarkable rebound, with substantial enhancements in both room rates and occupancy rates. Leveraging this resurgence in the industry, ITC’s Hotels Business is primed to capitalize on the growth momentum and maintain its trajectory of sustainable growth.
ITC Hotels is also set to benefit from other emerging developments and trends in the industry. The Indian government’s strong emphasis on the Travel & Tourism sector, recognizing its substantial economic multiplier impact and employment generation potential, further bolsters the outlook. Additionally, significant investments in infrastructure, such as airports and highways, have resulted in improved connectivity, creating favourable demand-supply dynamics in the hospitality industry. These factors collectively enhance the growth prospects for ITC Hotels in the coming times.
ITC Hotels is strategically positioning itself to cater to the rising demand for hospitality services in South and Eastern India. Again, recognizing the shift in the Indian domestic tourism market towards offbeat destinations, the brand is seizing the opportunity by expanding its Storii brand. ITC Hotels is actively exploring growth opportunities in Tier 2 and 3 cities in India, where the demand for upper-upscale hotels is on the upswing, driven by increasing affordability and the growing presence of business and corporate establishments.
The strategic reorganisation will pave the way for ITC Hotels to cross-leverage synergies with ITC’s fast-growing foods business as well as new vectors like food technology. For example, the demerger will facilitate and drive synergies between brands like ITC MasterChef, Kitchens of India, and Aashirvaad with the Hotel Business. Again, products developed by ITC’s Agri Business Division can be integrated and complement the offerings of ITC Hotels. The bottom line – ITC Hotels is well-positioned to harness the strengths of the ITC enterprise and drive sustainable growth in a dynamic and fast growing hospitality industry.
(Rajesh Mehta is a leading consultant & columnist working on Market Entry, Innovation & Public Policy.)
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