ITC Limited’s board has given in-principle approval for the demerger of its Hotels Business under a scheme of arrangement. This strategic move, as per a regulatory filing on July 24, will allow the hotel business to function as a separate entity within the rapidly expanding hospitality industry, focusing on its growth path with an optimal capital structure.
Paving the Way for Hospitality Industry Expansion
The proposed restructuring is aimed at enabling the hotel business to operate as an independent entity, positioning itself for success in the thriving hospitality sector. The focus will be on achieving accelerated growth and sustained value creation with an optimal capital structure.
Shareholder Ownership
According to the approved plan, the new entity will be predominantly owned by the company’s shareholders, holding approximately 60% of the stake. ITC Limited will retain about 40%, ensuring continued interest in the hospitality sector. This move is expected to provide long-term stability and support to the new entity.
Chairman’s Vision for Growth
Commenting on this significant development, ITC Chairman Sanjiv Puri said, “The creation of a hospitality-focused entity will usher in the next horizon of growth and value creation by harnessing the exciting opportunities in the Indian hospitality industry. In the proposed restructuring, both ITC and the new entity will continue to benefit from institutional synergies.”
ITC’s Impressive Performance Attracts Investors
ITC Limited’s remarkable performance across all its business segments including cigarettes, FMCG, paper and hotels has made it an attractive option for investors. Recently, the company achieved a market cap of over Rs 6 lakh crore, making it the seventh Indian listed company to reach this milestone. Its shares have gained more than 48% this year, indicating investor confidence in the company’s growth prospects.
Analysts’ Optimism and ITC’s Future
Foreign broking firm Jefferies recently raised its target price on ITC to Rs 530 from Rs 520, an upside of 19 per cent from current levels. This optimistic outlook comes after ITC considered an alternative structure for the hotel business. Once the demerger is complete, ITC is expected to further unlock the potential of its hotel business, thereby strengthening its position in the market.
Conclusion
The in-principle approval for the demerger of ITC’s Hotels Business marks a strategic move that aims to maximize growth opportunities within the Indian hospitality industry. By operating as a separate entity, the hotel business can focus on its expansion with the support of ITC Limited. This step aligns with the vision of creating long-term stability, accelerated growth, and sustained value for both ITC and the new entity. As the hospitality sector continues to grow, ITC’s strategic restructuring positions it favorably for future success and profitability.
