ITC dips 4% after board gives in-principle approval to demerge hotel biz

Shares of ITC dipped 4 per cent to Rs 469.60 on the BSE in Monday's intra-day trade after its board gave in-principle approval to demerge the Hotels business into a new entity,  to be listed pursuant to a scheme of arrangement under a scheme of arrangement. The stock has fallen 6 per cent from its record high level of Rs 499.60 touched in the intra-day trade today.

ITC said 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 newly-formed company's shareholders proportionate to their shareholding in the company.

The Board has also approved incorporation of a wholly owned subsidiary of the company, to be named ITC Hotels Limited or such other name as may be approved by the Ministry of Corporate Affairs.

Details of the proposed reorganisation, including the scheme of arrangement, shall be placed for approval of the Board at its meeting to be convened on 14th August, 2023, the company said.

Despite today's decline, ITC has outperformed the market by surging 42 per cent thus far in the calendar year 2023. In comparison, the S&P BSE Sensex was up nearly 9 per cent during the same period.

The company’s Hotels Business has matured over the years and is well poised to chart its own growth path as a separate entity in the fast growing hospitality industry with sharper focus on the business and an optimal capital structure, whilst continuing to leverage ITC’s institutional strengths, brand equity and goodwill.

ITC said 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. This move by the company also reinforces the sharper capital allocation strategy put in place in recent years, manifest in the pivot to ‘asset-right’ strategy in the Hotels Business, the company said.

After 2 years of pandemic-led disruptions, the Indian hospitality industry has bounced back strongly with significant improvement in room rate and occupancy. ITC’s Hotels Business has also emerged stronger and has delivered robust growth and margin expansion in FY 2022-23 and is well poised to sustain the growth momentum.

Sanjiv Puri, Chairman of ITC Limited said: “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.”