The Competition Commission of India (CCI) has given its nod to the demerger of the hotel business of ITC, marking a significant development in the company’s restructuring plans. This approval sets the stage for the separate listing of shares of ITC Hotels, a move that has been eagerly awaited by investors and industry observers alike. The National Company Law Tribunal (NCLT) has mandated ITC to convene a shareholder meeting on June 6, 2024, to seek approval for the proposed demerger.
ITC’s board initially greenlit the demerger of its hotels business on August 14, 2023, outlining a tentative timeline for the listing of the new entity within approximately 15 months. As per the demerger scheme, ITC shareholders will retain around 60% direct ownership in ITC Hotels, proportionate to their existing stake in ITC, while the remaining 40% stake will remain with ITC. Notably, no cash consideration will be exchanged as part of the demerger.
The proposed demerger and subsequent listing of ITC Hotels have garnered a mixed response from proxy advisory firms. InGovern and Stakeholders Empowerment Services (SES) have thrown their support behind the move, recommending that shareholders vote in favor of the resolution. Conversely, Institutional Investor Advisory Services (IiAS) has taken a contrary stance, advising shareholders to vote against the proposal.
This divergence in opinions underscores the complexity and potential implications of the restructuring exercise for ITC and its stakeholders. While some view the demerger as a strategic step that could unlock value and enhance focus on both businesses, others raise concerns about the impact on ITC’s overall financials and shareholder returns.
A key aspect of the demerger approval is the financial performance of ITC’s hotel business. According to the company’s Q4FY24 results, the segment revenue for the hotel business stood at Rs. 2989.50 crore, with a Segment EBITDA of Rs. 1049.88 crore. These figures shed light on the robust performance of the hotel segment, which could be a significant driver for investor interest in the standalone entity post-listing.
The decision to separate the hotel business comes at a critical juncture for ITC, as the company seeks to realign its portfolio and sharpen its focus on core areas of growth. By carving out the hotel segment into a distinct entity, ITC aims to create greater clarity and transparency for investors, allowing them to evaluate each business independently and make informed investment decisions.
The demerger also holds strategic implications for ITC’s future expansion and capital allocation strategies. With a separate listing, ITC Hotels could potentially have greater access to capital markets, enabling it to pursue growth opportunities, undertake strategic acquisitions, and expand its footprint both domestically and internationally.
However, challenges lie ahead as well. The success of the demerger and subsequent listing will hinge on various factors, including market conditions, investor sentiment, and the ability of ITC Hotels to demonstrate sustained growth and profitability post-listing. Additionally, effective post-demerger integration and management of synergies between the two entities will be crucial for maximizing shareholder value and ensuring a smooth transition.
In conclusion, the approval of the demerger by CCI marks a significant milestone in ITC’s journey towards restructuring and unlocking shareholder value. As the company prepares for the shareholder vote and eventual listing of ITC Hotels, investors will be closely watching developments, weighing the potential risks and rewards associated with this transformative initiative.
