 "ITC holding in hotel business key to its success, says CMD Sanjiv Puri")
ITC Chairman and Managing Director Sanjiv Puri on Friday sought to defend the company’s decision to retain a 40 per cent stake in ITC Hotels after a demerger, saying this would ensure the success of the new entity and protect shareholder value. His remarks came at ITC’s annual general meeting, ahead of the August 14 board meeting to approve the reorganisation of the hotel business.
“The most important facet of sustaining and protecting shareholder value is to make sure that ITC Hotels succeeds,” Puri said, responding to questions from shareholders on protecting their interests in the demerger.
Puri said the continued interest of ITC in the hotel company would let it use the ITC logo, brands, and intellectual property, and stabilise its operations. “At the same time, the institutional synergies that ITC enjoys in the FMCG businesses, particularly in foods, will be retained. Ultimately, the valuations follow the value that is created,” he said.
The Ministry of Corporate Affairs, he said, had approved ITC Hotels as the name of the demerged entity. On the timeline for listing, Puri said the whole process could take 12 to 15 months, “more or less”.
On July 24, the ITC board had given an in-principle approval to spin off its hotel business into a new entity. According to the scheme of arrangement, ITC would hold a stake of about 40 per cent in the hotel company and the remaining 60 per cent would be held directly by the company’s shareholders proportionate to their shareholding in the company. The scheme had caused some disappointment among investors, with the ITC stock slipping more than 10 per cent since the announcement.
The details of the reorganisation, including the scheme of arrangement, would be placed before the ITC board for approval on August 14.
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Puri pointed out that the hotel business recorded a strong performance for FY23 with the doubling of segment revenue. Ebitda (earnings before interest, taxes, depreciation, and amortisation) margins expanded by 930 bps over FY20.
The FMCG business represents an area of “immense potential”, he said. “In a relatively short span of time, your company has built a portfolio of 25-plus vibrant brands in the FMCG businesses that represent an annual consumer spend of Rs 29,000 crore,” he told shareholders.
Two of the flagship brands were in the league of over Rs 5,000 crore while five brands had touched spends between Rs 1,000 crore and Rs 4,000 crore, he said.
FMCG accounts for the largest chunk in ITC’s non-cigarette revenues.
The market size of the FMCG segment was estimated to be upwards of Rs 21 trillion by 2030, and the addressable market for ITC’s ‘curated’ portfolio was estimated at about Rs 5 trillion, Puri said. Overall, the non-cigarettes business accounts for 67 per cent of revenue and 28 per cent of segment Ebitda.
ITC was also bullish on India’s growth trajectory, which showed in its investments. Last year, ITC’s capex spend was more than Rs 2,000 crore. “As capacity utilisations are improving, I think this number is going to increase as we go forward,” Puri said.
The company commissioned five factories and one hotel in FY23. “Reflecting our optimism in India’s growth story, ITC is making investments in 4 more facilities,” he said.
On cigarettes, he said that it was about 8 per cent of tobacco consumption in India, and the illicit was one-third of the legal industry. But stability in taxation in the recent past and deterrent actions of the government were working in favour of the legal industry.
Puri also told shareholders, “The progressive policy environment together with favourable demographics and India’s growing stature on the world stage, have led to heightened interest in leveraging India as a global hub for manufacturing, services and exports.”
Indeed, it is being widely acknowledged that this is India’s moment, he added.