Why is it right time for ITC’s hotel business de-merger?

“Your company’s implementation of the ‘asset-right’ strategy, together with strategic interventions in recent years, investments in digital technologies and pursuit of alternate structures in line with industry recovery dynamics, position it well to scale the next horizon of growth,” he added.

The cigarette-to-soap maker had also talked about “exploring” alternative structures for its hotels' segment before the coronavirus outbreak.
The cigarette-to-soap maker had also talked about “exploring” alternative structures for its hotels' segment before the coronavirus outbreak.

While ITC has said that an alternative structure for its hotels business is “very much on the table”, analysts said this is the “right time” for the diversified conglomerate to look at unlocking value in this business, as the hospitality industry is expected to witness a strong recovery this fiscal after Covid hiatus.

The cigarette-to-soap maker had also talked about “exploring” alternative structures for its hotels’ segment before the coronavirus outbreak.

“When the pandemic came in, we said that we are holding it for now till things normalise, and we have reiterated in the annual report and the investors meet that we will take it forward in line with industry recovery dynamics,” ITC chairman and MD Sanjiv Puri told reporters on Thursday. Puri added that all the indications now are that the industry is on a positive trajectory. “So, that is where it stands. It is very much on the table.”

At its first-ever institutional investors and financial analysts’ meeting in December last year, the conglomerate said it had started to look at “some alternate structuring” to enhance “value creation” for its hotel business.

Replying to the shareholders’ queries during its annual general meeting on Wednesday, the chairman said the company is “absolutely open” to reviewing the organisational structure and it will objectively evaluate what is in the best interest of shareholders.

Responding to a question asked by FE on Thursday during the press meet, puri said there are “certain options” on the table for the proposed alternate structure for the hotel business.

“What forms the alternate structures will be? I will rather wait till we finalize what we are going to do. There are certain options on the table…in some time we will take up this, and the board will discuss it. And, once we decide that we are going ahead, we will also at that time debate and finalize the option in consultations with the experts. And that will be the right time to talk about it. I am not going to bring it up now,” he added.

“This is the right time for them (ITC) to look at value unlock in the hotel business. However, it is currently unknown how will the management be going to take forward the “alternative structure” for the hotel business,” Abneesh Roy, executive director, Institutional Equities, Edelweiss Securities, told FE.

Roy said this is the right time for the company to look at the value unlock because the hospitality industry is expected to witness a strong recovery this fiscal after the Covid hiatus.

“Undoubtedly, the last two years have been the most challenging for the travel and hospitality sector worldwide. Your company’s hotel business responded with commendable agility to tap alternate customer cohorts and garner new revenue streams. The segment revenue for the year doubled whilst segment PBIT turned positive in the second half of FY22. The resurgent trend in domestic tourism, MICE and banqueting highlight the immense opportunities for trusted brands like ITC Hotels in a post-pandemic era,” Puri said during his address to the shareholders at the AGM.

“Your company’s implementation of the ‘asset-right’ strategy, together with strategic interventions in recent years, investments in digital technologies and pursuit of alternate structures in line with industry recovery dynamics, position it well to scale the next horizon of growth,” he added.

Significantly, the country’s hospitality industry bounced back towards the end of FY22 with exit occupancies surpassing pre-pandemic levels. The average Room Rate improved over the last fiscal but remained below pre-pandemic levels.

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

Photos