By Horman Fatakia and Mangalam Maloo
The board of ITC Ltd. has given its in-principle approval for the demerger of its hotels business at its board meeting held on Monday.
This has confirmed a CNBC-TV18 newsbreak on July 5, in which Mangalam Maloo had reported about alternate structures, including a separate listing of the hotels business being considered for the hotels business. As per the scheme of arrangement, the company will hold a stake of close to 40 percent in the new entity, while the remaining 60 percent will be held by the company’s shareholders, proportionate to their shareholding in the company.
The scheme of arrangement will be placed for the approval of the board at its next meeting on August 14, 2023. The board has also approved the incorporation of the wholly-owned subsidiary, which is proposed to be named as “ITC Hotels Ltd.” or any other name approved by relevant authorities.
Application for incorporation of the wholly-owned subsidiary is in the process of being filed and will be completed once the Ministry of Corporate Affairs approves the same, the company said in its exchange filing.
ITC has proposed to subscribe shares of the wholly-owned subsidiary of face value of Re.1 each, not exceeding Rs 100 crore in aggregate.
The demerger also reinforces the sharper capital allocation strategy put in place in recent years, in the pivot towards the “asset-right” strategy for the Hotels business.
ITC’s hotels business contributed to nearly 5 percent of the combined revenue and EBIT over the last decade but more than 20 percent of the company’s capex in the past. The EBIT margin for the hotels business for financial year 2023 was at a decade-high of 21 percent.
Most analysts are valuing ITC’s hotel business around 16-20 times financial year 2025 Enterprise Value-to-EBITDA. At current price, shares of Indian Hotels are trading at 25 times financial year 2025 Enterprise Value-to-EBITDA.
For financial year 2023, ITC Hotels had a revenue of Rs 2,585 crore and EBITDA of Rs 832 crore. ITC’s hotel business currently has over 120 hotels and 11,600 keys, across 70-plus locations.
“The proposed demerger of the Hotels Business is testament to the Company’s commitment to creating sustained value for stakeholders,” Chairman & Managing Director Sanjiv Puri was quoted as saying.
“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,” he added.
Shares of ITC have cooled off nearly four percent from the day’s high, currently trading 2.3 percent lower at Rs 478.05.