Hotel business demerger to sharpen capital allocation for ITC: CMD Sanjiv Puri at Annual General Meet

ITC Chairman and Managing Director Sanjiv Puri on Friday said that the demerger of the hotel business will sharpen capital allocation, improve asset efficiency ratios, unlock value for shareholders and enable leverage of institutional synergies.

Speaking at the 112th Annual General Meeting, Puri said the continued interest of ITC in the demerged entity will provide long-term stability and instill a sense of assurance among partners, investors and employees.

"The proposed reorganisation will enable ITC to architect the next horizon of growth as a pure play hotels entity with a strong balance sheet, and healthy pipeline, especially when industry is poised for robust growth, Puri said on Friday.

He added: "Continued interest of ITC in the demerged entity will provide long-term stability and instill a sense of assurance among partners, investors and employees while enabling the new entity to leverage ITC’s institutional strengths, including the timeless goodwill, world class brands and governance processes."

Last month, the Board of ITC Limited granted in-principle approval for the demerger of the hotels business under a scheme of arrangement, the company said in a regulatory filing.

The intimation sent by Hotels-to-cigarettes major ITC Ltd stated that appropriate announcements and public disclosures in accordance with the Securities and Exchange Board of India's (Sebi) listing regulations and other applicable laws will be made as necessary.

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.

ITC Hotels has over 120 hotels spanning 11,600 keys across over 70 locations in its portfolio, under six brands namely ITC Hotels, Mementos, Welcomhotel, Storii, Fortune and WelcomHeritage. In FY23, the hotel business comprised about 4 per cent ITC's total revenue and 2 per cent of EBIT.

"After due consideration, the Board accorded its in-principle approval to the demerger of Hotels Business under a scheme of the 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 in the filing.

Earlier at a shareholders' call, CMD Puri said the demerged entity will have a 'royalty-like' arrangement for use of the other ITC brands and assets.

“ITC will stay invested in the hotels business with this holding and also draw synergies for its foods vertical from the demerged entity. The hotel entity will have a strong balance sheet and also be debt-free. It can also raise capital either through debt, equity or from strategic investors," he said on July 27.

ITC's hotel business has seen its revenue grow at 12 per cent CAGR over FY20-23. On the back of healthy occupancies (70 per cent) and peak average room rates (ARR), a segmental EBITDA margin expanded to an all-time high of 32.2 per cent in FY23. In the segment, the revenue doubled over FY22, standing at 1.4x of pre-pandemic levels, the company said.

ITC is currently trading at a price of Rs 446.00, down by 1.10 per cent today. The shares closed at Rs 451.75 on Thursday, with a 3-month return of 7.46 per cent. The average trading volume over the past 7 days was 8,552,852 shares.

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