After a 66 percent rally in the past year, his large-cap FMCG stock saw its valuation surpass the six lakh crore mark for the first time. In this process, it overtook the market capitalization of Hindustan Unilever Ltd, amid a buzz around the demerger of its businesses.
Shares of ITC Ltd shed 4.4 percent to reach an intraday low of ₹ 468.70 apiece on the National Stock Exchange (NSE) after its board gave in-principle approval for the demerger of its hotels business, ending months of speculation around the topic.
ITC’s board noted that its Hotels Business has matured over the years and is well poised to chart its own growth path as a separate entity in the fast-growing hospitality industry with a sharper focus on the business and an optimal capital structure, whilst continuing to leverage ITC’s institutional strengths, brand equity and goodwill.
“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 percent in the new entity and the balance shareholding of about 60 percent to be held directly by the Company’s shareholders proportionate to their shareholding in the Company,” ITC said in an exchange filing.
ITC said that this reorganization would ensure its continued interest in the hospitality business and provide long-term stability and strategic support to the new entity and help it leverage cross synergies. Moreover, it will help the newly incorporated entity “ITC Hotels Ltd” to attract appropriate investors, strategic partners and collaborations whose investment strategies and risk profiles are sharply aligned with the hospitality industry.
This demerger aims at unlocking value for shareholders by providing them a direct stake in the new entity, along with an independent market-driven valuation. It reinforces the sharper capital allocation strategy put in place in recent years, manifesting in the pivot to the ‘asset-right’ strategy in the Hotels Business.
The company will place the scheme of arrangement for the approval of the board on August 14, 2023. It will make appropriate announcements and public disclosures in accordance with SEBI’s Listing Regulations and other applicable laws.
Moreover, the board has approved the incorporation of the company’s wholly-owned subsidiary “ITC Hotels Limited” or any other name as approved by the Ministry of Corporate Affairs. ITC will be paying a cash consideration to its wholly-owned subsidiary towards the subscription of its shares of the face value of ₹ 1 each, at par, not exceeding ₹ 100 crores in aggregate. ITC will own 100 percent of the company’s issued and subscribed share capital at the time of incorporation.
ITC’s hotel business comprised approximately 4 percent of its revenue and 2 percent of its EBIT. ITC is the second-largest hotel chain in India among its listed peers, with revenue of ₹ 2,700 crores, 120 properties and 11,500 rooms. In line with ITC’s asset right strategy, about half of the rooms added by the company in the last three years have been through management contracts, rather than ownership.
With a market capitalization of ₹ 6,11,016 crores, ITC is a large-cap company. It has a high return on equity of 29.16 percent and a high dividend yield of 2.60 percent. Its shares were trading at a price-to-earnings ratio (P/E) of 31.73.
Foreign Institutions hold a 43.62 percent stake in the company followed by domestic institutions with 28.28 percent, retail investors with 18.93 percent and mutual funds with 9.17 percent.
Written by Simran Bafna
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