Nifty companies are in a race to unlock the value of their business ventures that they have nurtured over the years and are now ready to chart their own growth stories, starting with Reliance Jio and now ITC, hotels division. Established in 1910, ITC is the largest cigarette manufacturer and seller in India. The company operates in various business segments, including FMCG business, hotels, paperboards, paper and packaging, and agribusiness. In a recent meeting, the company said that its board has given in-principle approval for the demerger of its hotel business. The proposed restructuring would allow the hotel business to operate as a separate entity.
In its exchange filing, the ITC said that, under a scheme of arrangement, the company and the ITC will hold a stake of about 40 percent in the new entity, and the balance shareholding of about 60 percent will be held directly by the Company’s shareholders proportionate to their shareholding in the company."
The Board of ITC is set to approve the proposed reorganisation of the hotel Business at its next meeting on August 14, 2023. The Board has also approved the incorporation of a wholly owned subsidiary to further the reorganization. The application for a wholly owned subsidiary is currently being filed and will be completed once the Ministry of Corporate Affairs approves it.
Year to date, the ITC share has rallied in one direction with no significant correction. If we leave aside the last two trading sessions, the stock has given a year-to-date return of approximately 47%.
In the last trading session ITC's become the most valuable consumer goods company in the Indian stock market, but since the demerger was announced, the stock has fallen more than 7%. The market has given a solid reason to company board to think about further announcement. The stock's fall could be attributed to a combination of factors, including the anticipation of partial value unlocking after the demerger.
ITC has over 120 hotels and 11,600 keys across over 70 locations. The hotel business accounted for nearly 4% of ITC's total revenue from services and sales and contributed over 2% of its annual profit.
ITC has adopted an 'asset-light' strategy, with a greater focus on adding properties through management contracts rather than owned hotels. About half of the rooms added in the last three years to the standalone entity have been through management contracts. With a revenue of Rs 2,700 crore, 120 properties, and 11,500 rooms in its kitty, ITC is the second-largest hotel chain in India among its listed peers.
The stock was down 2.98% for the session and trading at Rs. 457.