ITC shares tank 6% from day's high after hotel business demerger announcement

Shares of ITC Limited fell sharply on Monday, after hitting its 52-week high during the day, after the company board approves in-principal demerger of hotel business at its board meeting. The company informed about the same via an exchange filing on Monday.

"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," said the filing.

Shares of ITC rose over 2 per cent scaled its new 52-week high at Rs 499.60 on Monday. However, the stock crashed 6 per cent from day's high to Rs 469.60 during the day, following the announcement of demerger. The total market capitalization of the company slipped below Rs 6 lakh crore mark.

Cigarettes-to-hotels major said that 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 added.

The company board of ITC also approved incorporation of the wholly-owned subsidiary (WOS) of the company. 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.

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