The ITC Group, one of India’s largest conglomerates, has announced the demerger of its hotel business, effective January 1, 2025. This move is a key part of ITC’s strategy to unlock shareholder value and enable ITC Hotels to chart its own growth trajectory. Let’s break down what this means for investors and the hospitality sector.
Why demerge the hotel business?
The decision to demerge stems from ITC’s vision to create distinct, focused entities. ITC Hotels has matured as a business, consistently delivering growth across its portfolio. By separating the hospitality arm, ITC aims to:
- Unlock shareholder value: Shareholders will now have a direct stake in ITC Hotels, reflecting its standalone performance.
- Enhance operational efficiency: ITC Hotels can now focus on its growth plans with a leaner structure and tailored strategies.
- Maintain strategic oversight: ITC will retain a 40% stake in ITC Hotels, ensuring synergies and continued support.
Structure of the demerger
Under the scheme:
- ITC retains 40% ownership of ITC Hotels.
- ITC shareholders will receive 1 share of ITC Hotels for every 10 ITC shares held.
- A nominal royalty fee will be charged by ITC for the continued use of its brand name.
This structure balances operational independence for ITC Hotels while ensuring alignment with ITC’s broader strategy.
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Timeline and regulatory approvals
The demerger was meticulously planned and executed:
- June 2024: Shareholders overwhelmingly approved the proposal, with 99.6% of public institutions voting in favour.
- October 2024: The National Company Law Tribunal (NCLT) sanctioned the demerger.
- December 16, 2024: ITC received the final order, setting January 1, 2025, as the effective date.
This comprehensive timeline underscores ITC’s commitment to a smooth transition.
Also read: ITC shares surge 2% following demerger
ITC Hotels: Key performance metrics
As a standalone entity, ITC Hotels has shown robust growth:
- Revenue growth (Q2 FY25): Up 12.1% YoY, driven by strong demand in F&B, retail, and weddings.
- EBITDA margin: Expanded by 70 basis points YoY, reflecting efficient operations and cost management.
- New openings: ITC expanded its portfolio with two high-end outlets, ‘Ottimo’ at ITC Grand Goa and ‘Avartana’ at ITC Maurya.
These numbers highlight ITC Hotels’ readiness to operate independently and pursue ambitious expansion plans.
Consolidation in hospitality stakes
ITC has also consolidated its investments in rival hospitality chains, such as:
- EIH (Oberoi Hotels): TC now owns 13.69%, with an additional 2.44% through its subsidiary, Russell Credit Ltd.
- HLV (Leela Hotels): ITC holds 7.58%, complemented by 0.53% via Russell Credit Ltd.
These moves bolster ITC’s presence in the premium hospitality segment while complementing ITC Hotels’ independent growth.
Market reaction and outlook
The market has responded positively to the restructuring:
- ITC shares gained 2.4%, touching ₹473.95 on the announcement day.
- Despite being 10% below its 52-week high of ₹528, investor optimism remains strong, given the long-term value creation potential.
This restructuring is expected to generate excitement around ITC Hotels’ standalone listing, which will offer a clearer valuation of the hospitality business.
You may also read: Titans of Indian hospitality: A deep dive into Indian Hotels and EIH Ltd
What’s next for ITC Hotels?
As an independent entity, ITC Hotels is poised for growth in the competitive hospitality market. Key focus areas include:
- Core segment growth: Expanding its presence across F&B, weddings, and premium stays.
- Capitalising on synergies: Leveraging ITC’s support in branding, finance, and strategy.
- Global ambitions: Building on its strong domestic presence to explore international opportunities,
Conclusion: A win-win for ITC and its shareholders
The demerger of ITC Hotels is a pivotal move that aligns with ITC’s long-term vision. While ITC strengthens its focus on core verticals, ITC Hotels can chart an independent path, creating value for both entities. For investors, this restructuring offers clarity, growth potential, and an opportunity to participate in the evolving hospitality landscape.
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