ITC to hive off hotels business into separate entity

Diversified entity ITC Ltd on Monday said it will demerge its hotels business by incorporating wholly-owned subsidiary ITC Hotels Ltd, paving way to attract appropriate investors and strategic partners.

With the company's hotels business maturing over the years, the company said the vertical is ready to chart its own growth path as a separate entity in the fast-growing hospitality industry.

"The Board of Directors of ITC Ltd at its meeting held on July 24, 2023, evaluated and discussed various alternative structures for the hotels business.

"After due consideration, the board accorded its in-principle approval to the demerger of hotels business under a scheme of arrangement," the company said in a regulatory filing.

Its board has also approved the incorporation of the wholly-owned subsidiary ITC Hotels Ltd, which will handle its hotels and hospitality business.

ITC said it will hold about 40 per cent stake in the new entity and the balance shareholding of about 60 per cent would be held directly by the company's shareholders proportionate to their shareholding in it.

The scheme of arrangement shall be placed for approval of the board at its next meeting to be convened on August 14, 2023.

"Creation of a hospitality focused entity will engender the next horizon of growth and value creation by harnessing the exciting opportunities in the Indian hospitality industry.

"In the proposed reorganisation, both ITC and the new entity will continue to benefit from institutional synergies," ITC Ltd chairman Sanjiv Puri said.

ITC said, "The demerger will help the new entity in attracting appropriate investors and strategic partners/collaborations whose investment strategies and risk profiles are aligned more sharply with the hospitality industry."

Besides, it said, "The proposed reorganisation would ensure continued interest of the company in the hospitality business, provide long-term stability and strategic support to the new entity in its pursuit of accelerating growth and sustained value creation as also enable leveraging of cross synergies between the company and the new entity."

It further said, "This move by the company also reinforces the sharper capital allocation strategy put in place in recent years, manifest in the pivot to 'asset-right' strategy in the hotels business."

Launched in 1975, ITC Hotels, India's premier chain of luxury hotels, has 120 hotels and 11,600 keys across 70-plus locations.

The company said over the last two decades or so, its hotels business has scaled up significantly in terms of room inventory, revenue and profits, operating brands such as 'ITC Hotels' in the luxury segment, 'Welcomhotel' in the premium segment, 'Fortune' in the mid-market to upper-upscale segment and 'WelcomHeritage' in leisure and heritage category.

It added two new brands, 'Mementos' in the luxury lifestyle segment and 'Storii' in the premium segment recently to offer varied experiences to new age travellers.

In 2017, ITC had decided to adopt an 'asset-right' strategy which envisages a substantial part of incremental room additions to accrue through management contracts.

As per data available on BSE, in the year ended on March 31, 2023 ITC's hotel business had clocked a revenue of Rs 2,689.12 crore, up from Rs 1,347.66 crore in FY22.

"After 2 years of pandemic-led disruptions, the Indian hospitality industry has bounced back strongly with significant improvement in room rate and occupancy.

"ITC's hotels business has also emerged stronger and has delivered robust growth and margin expansion in FY 2022-23 and is well poised to sustain the growth momentum," the company said.

Bullish on the Indian hospitality industry, ITC said it is expected to witness rapid growth going forward driven by strong macroeconomic fundamentals and growth prospects of the Indian economy, increasing affluence and favourable demographic profile of the country's population and the government's thrust on the travel and tourism sector.