ITC’s hotel biz demerger: weighing pros and cons
not gone down well with investors. Shares of the company have fallen by more than 8% from its 52-week high of ₹499.70 apiece seen on Monday. Investors are largely unsettled by the proposed structure following the demerger, where ITC will retain 40% of the new entity’s stake, leaving the rest for existing shareholders.
Analysts at Nomura Financial Advisory and Securities (India) have identified primary investor worries as the deviation from a clean demerger and the potential hampering of value unlocking. Implications of stamp duty or taxation are also concerning. Nevertheless, there are bright spots.
The formation of a dedicated hotels unit would open up opportunities for partnerships with investors in the hospitality industry and at the same time derive cross synergies with ITC. The transaction augurs well for ITC as well. “We believe the demerger will free-up the earmarked annual capex of about ₹200 crore to ₹300 crore.
On the de-merger of the hotels business, there could be surplus cash saving and could result in higher dividend payout for shareholders over the medium term, in our view," said Nomura’s analysts in a report on 25 July. The hotel sector represents a relatively small portion of ITC’s revenue and earnings before interest and tax (Ebit), at 4% and 2% respectively for FY23. However, it accounted for approximately 11% of capital expenditure in the same year.
Consequently, the demerger is expected to solidify ITC’s financial standing, improve capital allocation, and enhance the returns profile. Also, the 40% stake to be held by ITC would help in securing management control if at all a large shareholder plans to exit. Despite this, analysts at JM Financial Institutional Securities do not think that the
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