ITC spinning off its hotels business is good news for investors
₹65,427 crore, operating profit (EBITDA) of ₹23,944 crore, and net profit of ₹18,753 crore. It has several related business segments and some unrelated ones. The FMCG division, which includes cigarettes and other products, contributes 61% of the topline.
The agro division and the paperboards and packaging division together contribute another 35%. These are connected. The raw materials for cigarettes include tobacco (a cash-crop) and paper (an agro product) and the company moved naturally into the other agro businesses and other FMCG products and packaging as it tried to backwards-integrate and gain control of its supply chain.
Hotels are clearly not a natural fit with paper, agro products, cigarettes and so on. The hotels division contributed around ₹2585 crore in revenue, ₹542 crore in profits before tax and ₹832 crore in operating profit in FY23. It registered a loss of ₹183 crore in FY22 when it had a revenue of ₹1,285 crore and an operating profit of ₹78 crore.
The year-on-year comparison isn’t very useful because of covid. But the company’s presentations say that revenue per available room is above pre-covid levels and operating profit has almost doubled since FY20. The operating margin was almost 35% in Q4 FY23 and 32% in FY23, way above the 23-24% margin of FY20.
Growth is being driven by retail, leisure expenditure, and weddings and there’s a “healthy pipeline of management contracts under Welcomhotel, Mementos, Storii and Fortune brands" with new openings slated for the next few quarters. The company used the fallow period to cut costs permanently. Operating margins are in the same range as that of the leading listed hotels stock, Indian Hotels, which had an operating margin of 32-33% in FY23.
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