ITC stock slumps after approval to demerge hotels business into new entity

ITC stock slumps after approval to demerge hotels business into new entity

IANS Photo

New Delhi, July 24 (IANS) The ITC stock slumped more than 3 per cent after the news of hotels business demerger.

The stock was down 3.37 per cent at Rs 473 on the BSE.

The Board of Directors of ITC Limited at its meeting held on Monday evaluated and discussed various alternative structures for the hotels business towards crafting the next horizon of growth as also enhancing value creation for all stakeholders.

The Board noted that the hotels business had 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.

After due consideration, the Board accorded its in-principle approval to the demerger of the hotels business under a scheme of arrangement; with the company holding a stake of about 40 per cent in the new entity and the balance shareholding of about 60 per cent to be held directly by tshareholders proportionate to their shareholding in the company.

The proposed reorganisation would ensure continued interest of the company in the hospitality business, provide long term stability and strategic support to the new entity in its pursuit of accelerating growth and sustained value creation as also enable leveraging of cross synergies between the Company and the new entity.

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.

Details of the proposed reorganisation, including the scheme of arrangement, will be placed for approval of the Board at its meeting to be convened on August 14..

To progress the proposed reorganisation as aforesaid, 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.

Over the last two decades or so, ITC’s Hotels Business has scaled up significantly in terms of room inventory, Revenue and Profits, and has established itself as a pioneer in green hoteliering anchored on its ‘Responsible Luxury’ ethos. Today, with over 120 hotels and 11,600 keys across 70+ locations, the ITC Hotels group is renowned for its world-class properties, iconic cuisine brands and unparalleled service standards. The Business today ranks amongst the fastest growing hospitality chains in the country with marquee brands viz., ‘ITC Hotels’ in the Luxury segment, ‘Welcomhotel’ in the Premium segment, ‘Fortune’ in the Mid-market to Upper-upscale segment and ‘WelcomHeritage’ in the Leisure & Heritage segment.

Having achieved considerable scale and market standing, the business in 2017 pivoted to an ‘asset-right’ strategy which envisages a substantial part of incremental room additions to accrue through management contracts.

Accordingly, two new brands, ‘Mementos’ in the Luxury Lifestyle segment and ‘Storii’ in the Premium segment, have also been launched recently to offer varied experiences to new age travelers.

After two 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.

The Indian Hospitality industry is expected to witness rapid growth going forward. The key drivers of growth include the strong macroeconomic fundamentals and growth prospects of the Indian economy, increasing affluence and favourable demographic profile of India’s population, government of India’s thrust on the Travel & Tourism sector which ranks amongst the highest in industry in terms of economic multiplier impact and employment generation, significant investment in infrastructure including airports & highways, leading to improved connectivity and favourable demand-supply dynamics in the industry.

Commenting on the proposed reorganistion, 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 reorganisation, both ITC and the new entity will continue to benefit from institutional synergies.”