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ITC Hotels demerger may cheer investors who are focused only on core biz, say analysts

ITC Hotels demerger

ITC Hotels demerger – ITC’s board of directors approved in principle today the demerger of its hotels division into a new corporation that would be listed on the stock exchange in due course. While ITC’s stock declined 3.87 percent on the BSE the day following the long-awaited move, experts believe it will eventually benefit ITC’s investors who are primarily interested in its core business. 

According to the demerger proposal, ITC will own roughly 40% of the new firm, with the remainder held directly by its shareholders in proportion to their stake in the parent. 

According to Abneesh Roy, Executive Director of Research at Nuvama Institutional Equities, the impact on ITC stock is minimal because the company’s SOTP (sum of the parts) valuation is based on its cigarette and FMCG businesses. “However, it (the hotels division) was a critical concern.” While it produced a low return on equity, it accounted for about 20% of capex. “It’s a risky business,” he says. 

ITC Hotels demerger

These difficulties would no longer have an impact on the valuation of ITC Hotels. “Those who want to play in the hotel business can do so, and those who want to play in the consumer-facing business of FMCG, essentially cigarettes and FMCG, will get a separate entity.” So it’s a start in the right way,” he says. 

The hotels company, which was incorporated into ITC some 20 years ago, has been the talk of the town for quite some time, as its probable demerger has been on the cards for quite some time. Prior to 2004, ITC Ltd. and ITC Hotels Ltd. and its subsidiaries shared ownership of the hotel business. On April 1, 2004, ITC Hotels Ltd. (a distinct listed corporation) and Ansal Hotels Ltd. amalgamated with ITC Ltd. The hotel industry has grown significantly over the last 20 years. It had almost 11,600 rooms by the end of FY23, which was 160% more than the 4,472 rooms it had in FY03.