ITC Unveils Game-Changing Demerger, ITC Hotels Ltd to Pave the Way for Future Growth
Investors Buzzing as ITC Announces Hotel Business Demerger, Stock Rally Expected!
24 July 2023
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Kunal Tyagi
ITC, an Indian FMCG giant, has received in-principle approval to demerge its hotel business under a scheme of arrangement.
The new entity, ITC Hotels Ltd, will be a wholly-owned subsidiary of ITC, with the company retaining a 40% stake and existing shareholders holding the remaining 60%.
The demerger aims to address concerns over the hotel business's high capital expenditure and lower returns, allowing ITC to focus on core business segments for enhanced value creation and growth prospects.
ITC, the well-known Indian FMCG giant, has recently made a significant decision that could reshape its business landscape. The company's board of directors granted in-principle approval to demerge its hotel business under a scheme of arrangement. The new entity, to be named ITC Hotels Ltd, will be established as a wholly-owned subsidiary of ITC Ltd.
As part of the demerger, ITC will retain a 40 per cent stake in the new entity, while the remaining 60 per cent of shares will be distributed among the company's existing shareholders in proportion to their current shareholding. This strategic move comes in response to concerns over the hotel business's high capital expenditure and relatively lower returns, with the goal of creating an alternative structure for future growth.
The hotel business has historically contributed less than 5 per cent to ITC's total revenues and EBIT over the last decade, despite accounting for more than 20 per cent of the company's capital expenditure. By demerging the hotels business, ITC aims to streamline its operations and shift its focus to core business segments, thereby enhancing the potential for value creation and growth in the future.
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Industry analysts have expressed optimism about this move, anticipating that it could spark a fresh rally for ITC's stock. The company's shares have already experienced a substantial surge in value earlier this year, and the demerger might further boost investor confidence and interest.
The demerger plan is currently pending approval from the Board, with a meeting scheduled for August 14, 2023, where the scheme of arrangement will be discussed and considered. Appropriate announcements and public disclosures, in compliance with the SEBI Listing Regulations and other relevant laws, will be made as necessary.
Upon completion, the newly formed ITC Hotels Ltd is expected to attract potential investors and strategic partners who align more closely with the hospitality industry's investment strategies and risk profiles. This move will likely open new avenues for growth and development in the hospitality sector while allowing ITC to concentrate on its core competencies and explore additional opportunities in its other business segments.
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