ITC board approves in-principle demerger of hotel business, to hold 40% stake in new entity

Cigarettes-to-hotels major ITC Ltd on Monday said that its board has given in-principle approval for the demerger of its hotels business at its board meeting. In a stock exchange filing, the company said it would hold a stake of around 40 per cent in the new entity and the balance will be held by the company’s shareholders proportionate to their shareholding in the company.

"After due consideration, the Board accorded its in-principle approval to the demerger of 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 the Company’s shareholders proportionate to their shareholding in the Company," ITC said.

"The scheme of arrangement shall be placed for approval of the Board at its next meeting to be convened on August 14, 2023. Appropriate announcements and public disclosures in accordance with the SEBI Listing Regulations and other applicable laws will be made as necessary," it said.

To progress the proposed reorganisation as aforesaid, the Board has also approved incorporation of a wholly owned subsidiary (“WOS”) of the company, the filing stated.

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.

“The proposed demerger of the Hotels Business is a testament to the Company’s commitment to creating sustained value for stakeholders. The 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,” said ITC Chairman and Managing Director Sanjiv Puri.

The company added that the demerger will also reinforce the sharper capital allocation strategy put in place in recent years, manifest in the pivot to ‘asset-right’ strategy in the hotels business.

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.

At present, ITC has over 120 hotels and 11,600 keys across over 70 locations. The hotel business contributed less than 5 per cent of ITC revenues and Ebit over the last decade, as per data shared by the company.

But it was more than 20 per cent 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 per cent.

Earlier this, ITC became the seventh Indian listed company to cross the Rs 6 lakh crore market cap mark for the first time after its shares rallied over 48 per cent so far this year.

Shares of ITC Ltd were trading at Rs 477.30 apiece, 2.68 per cent down from its precious close.

ITC is the largest cigarette manufacturer and seller in India and was established in 1910. ITC operates in various business segments at present including FMCG business, hotels, paperboards, paper and packaging, and agribusiness.

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