ITC Hotels Demerger Gets Shareholder Nod: What’s In for Investors?
ITC shares rose by more than 1%, finishing at Rs 435.4/ share on the National Stock Exchange (NSE) on June 6, following the shareholder approval of the conglomerate's hotel business demerger. Let’s dive into the details of this strategic move and its implications for ITC's future.
The Foundational Shift at ITC Hotels
In 2004, ITC Hotels embarked on a significant transformation by merging with its parent entity, ITC Ltd. Now, nearly two decades later, ITC Ltd is set to redefine its corporate strategy with the planned demerger of its hotel business. This move is designed to further enhance the use of the ITC brand and unlock additional value for the entity.
Reflecting on Growth and Synergies Post-Merger
Since the merger, ITC Hotels has shown remarkable growth, tripling its room capacity from 4,472 in FY03 to 11,600 in FY23. Revenue from this division has increased significantly as well, growing from Rs 349 crore to Rs 2,689 crore. Despite this growth, the hotel business still constitutes only 3.8% of ITC's total revenue, which is predominantly driven by its FMCG and cigarette businesses. Despite the modest contribution to overall revenue, the hotel division significantly uses about 20% of the capital employed.
Strategic Shifts: Embracing an Asset-Light Model
The demerger presents ITC Hotels with an opportunity for more defined strategic focus. With an independent board and better access to diverse funding options, the hotel business is poised for accelerated growth. In the past two years, ITC has successfully launched 24 new hotels and is on track to open another 27 by March 2026. By adopting an asset-light strategy—a popular model in the hospitality industry—ITC Hotels is prioritizing management contracts for its various brands.
The Timing and Impact of the Demerger
The decision to demerge at this juncture aligns perfectly with the resurgence of tourism in India, providing a strategic advantage in capitalizing on this growing market. The demerger will likely provide the hotel business with enhanced operational clarity and management focus, facilitating more targeted strategies.
Additionally, private equity funds, which were previously hesitant to invest in the hotel segment due to its amalgamation with ITC, can now direct their investments specifically towards ITC Hotels.
While the demerger is not expected to significantly affect ITC's revenue, it is likely to boost profitability. Following the separation, both ITC's Return on Capital Employed (RoCE) and Return on Invested Capital (RoIC) could also see a significant increase.
ITC Demerger Ratio and Listing Date
Under the ITC demerger plan, ITC Ltd shareholders will receive 1 equity share of ITC Hotels for every 10 shares they hold. The demerger process is likely to conclude within the current calendar year. Upon completion, shares of ITC Hotels will be officially listed on both the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).
Looking Ahead: Optimism and Opportunity
With the demerger, ITC Hotels is poised for a new chapter of focused growth and innovation. This strategic decision marks a thoughtful pivot towards maximizing potential and enhancing shareholder value.
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