Tobacco-to-cookies conglomerate ITC Ltd on Monday announced that it will spin off its iconic ITC Hotels business into a separate entity and list it on the stock markets. The decision was taken at a meeting of the company’s board of directors.
A senior source in ITC Ltd told DH that since the approval given by the board of directors was ‘in principle’, the process of spinning off and listing the hotels business will take at least a year. “All the proceeds from the listing will be put into the hotels business,” the person said.
As per the plan, ITC will retain a 40 per cent stake in the hotels business — which will continue using ‘ITC’ brand name — and 60 per cent will go to the existing ITC shareholders, in the same proportion in which they hold parent company shares.
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“Details of the proposed reorganisation, including the scheme of arrangement, shall be placed for approval of the board at its (next) meeting to be convened on Aug 14,” ITC said in a statement.
“Creation of a hospitality-focused entity will engender the next horizon of growth and value creation by harnessing exciting opportunities in the Indian hospitality industry. In the proposed reorganisation, both ITC and the new entity will continue to benefit from institutional synergies,” said Sanjiv Puri, ITC Ltd chairman.
The company source said the move is being made to raise capital for the expansion of the hotel chain in light of the strong rebound in the hospitality sector after the Covid-19 pandemic.
“The ITC demerger helps put the hospitality business in the silo it best belongs in. The moment this demerger kicks in, the hospitality business polishes up its risk profile. A pure-hospitality play is that much more of an attractive proposition to investors who want to watch their money in a business they understand,” said Harish Bijoor, hospitality expert and brand consultant.
Akshay D’Souza, chief of Growth & Insights at Bizom, said the demerger decision is in line with ITC’s plan to have two-thirds of its revenue from the fast moving consumer goods (FMCG) business by 2030. It is also compatible with the company’s long-term plan of derisking from cigarettes.
“ITC will now build on its FMCG business and launch more products while building its brands. Expect more acquisitions, mainly in the FMCG business, in the future,” D’Souza said.
“After two years of pandemic-led disruptions, the Indian hospitality industry has bounced back strongly with significant improvement in room rate and occupancy. ITC Hotels business has also emerged stronger and delivered robust growth and margin expansion in FY 2022-23 and is well poised to sustain the growth momentum,” the company said in its statement.
It said that the key drivers of growth in the hospitality sector include strong macroeconomic fundamentals of the Indian economy, increasing affluence and favourable demographic profile of the population, the government’s support of the travel and tourism sector, and improvements in transport infrastructure.