 "Sanjiv Puri, CEO, ITC")
The proposed demerger would be a win-win for both ITC and the new hotels company, the management said on Thursday to allay investor concerns. The financial ratios would improve significantly for ITC, while the new entity would start with a strong balance sheet.
During an investors’ call on the proposed demerger, Chairman and Managing Director Sanjiv Puri said that from ITC’s perspective the return ratio would improve immensely, while the move reinforced the firm’s stated position on a sharper capital allocation and was directed towards unlocking value for existing shareholders.
The pure-play hospitality-focused company with an asset-right strategy would have all the resources to go on a path that is even more accelerated than at present. An asset-right strategy refers to balancing owning properties and managing them through contracts.
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Under 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 directly by the company’s shareholders proportionate to their shareholding in ITC.
The new entity would be determined as an associate company on the consolidated balance sheet of ITC.
Supratim Dutta, executive director and chief financial officer, said, the segment may give ITC a return on capital employed (ROCE) that’s higher by 18-20 percentage points. These were ballpark figures and based on FY23 numbers. The return on invested capital (ROIC) was expected to improve by double digits (10 per cent).
The hotel company would start with no debt on its balance sheet and have net assets worthRs 6,000 crore.
These assurances came amid the Kolkata-based firm’s stock price slipping about 7 per cent since the demerger was announced on July 24.
The ITC management said that it had entered into no arrangement with any of its existing big shareholders to buy shares if they wished to offload their holding in the new entity. ITC, though, would stay invested in the hotels business.
On cross-synergies that have been at play, particularly between hotels and branded packaged foods, the management said that it would continue even in the new structure. But Puri said that it would be at an arm’s length basis because it would be a related party.
Dutta added that even today when foods and hotels interact, there are often flows of people and the cost is picked up by the business requiring it. “So there could be a small mark-up in the new structure but financially it’s not a material impact.”
A board meeting is slated for August 14 to approve the details of the proposed reorganisation, including the scheme of arrangement.
Puri said that ITC does have a stock option scheme for a certain section of employees based on the position they hold in the company. “Once the employees move to the new company, it (the new company) would determine the terms of the scheme in that respect if they wish to….nobody is going to suffer.”
On the use of ITC and its brand assets, Puri said that there would be an arrangement for royalty based on industry benchmark.
