24-Jul-2023
2 mins read
FMCG top player ITC’s board has granted preliminary approval for the demerger of its hotels business under the scheme of the arrangement, paving the way for creating a wholly owned subsidiary named ITC Hotels. According to the information released in the stock exchange listing, ITC Ltd. intends to keep around 40% ownership in the newly created company, ITC Hotels. The rest of the ownership will be distributed among the current shareholders of ITC Ltd. based on their existing shareholding proportions.
ITC plans to reorganise its hotel business and make a new company called ITC Hotels. This plan needs approval, and they will present it to the ITC Board on August 14, 2023, during their next meeting.
Sanjiv Puri, chairman of ITC, said, “The proposed demerger of the hotels business is a testament to the company’s commitment to creating sustained value for stakeholders. The creation of a hospitality-focused entity will engender the next horizon of growth and value creation by harnessing exciting opportunities in the Indian hospitality industry.
ITC’s Share Price Plunged 4.30 %
After the news about ITC’s hotel business reorganisation, the stock price dropped from Rs 490 to Rs 469.35 per share during the day. The stock closed at 4.30% lower than its opening price. Notwithstanding this recent downturn, the stock has performed well in the past few months. It’s up 7% just this month and has seen a remarkable 40% increase in the past six months, showing a solid upward trend.
ITC’s Point of View
The company’s decision to demerge will lead to unlocking the hotel business’s value for its shareholders. They have a direct stake in the new entity and benefit from an independent market-driven valuation. This move also highlights the company’s sharper capital allocation strategy, evident in its recent pivot towards the ‘asset-right’ strategy in the hotel business. The demerger is expected to facilitate the new entity in attracting suitable investors and strategic partners or collaborations whose investment strategies and risk profiles are closely aligned with the hospitality industry. ITC mentioned that their hotel business has become more mature over time. They feel ready to take on their journey as a separate company in the fast-growing hospitality industry. They will focus more on their business and how they use money wisely while still using their strengths, brand name, and good reputation to their advantage.
The Future Outlook for ITC Hotels
Currently, ITC has over 1200 hotels and 11,600 keys across more than 70 locations and competes with TATA Group’s Indian Hotels Co. (IHTL.NS) that own. The hotel business only contributed 4% of the ITC’s total revenue. Over the past two decades, ITC’s hotel business has experienced substantial growth in various aspects. It has expanded its room inventory, leading to an increase in revenue and profits. This growth trajectory reflects the successful development and management of its hotels, contributing to the overall positive performance of the business within the hospitality industry.