After Demerger Announcement, ITC Likely To Launch IPO For Its Hotel Business In 2024

About two weeks after India's favorite meme stock ITC was left bleeding after the conglomerate announced the demerger of its hotel business, another big move is expected to be taken by ITC.

ITC Hotels Likely To Go For IPO In 2024

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ITC is planning to make ITC Hotels public by listing them in the next six to nine months, people familiar with the developments told ET. The next course of action is likely to be taken in the board meeting to be held on August 14. ITC stock is up 36% this year to date.

ITC's hotels include ITC Maurya (New Delhi), ITC Narmada (Ahmedabad), ITC Grand Bharat Retreat (Gurugram), among many others.

The intimation to the stock exchanges states that appropriate announcements and public disclosures in accordance with the Securities and Exchange Board of India (SEBI)'s listing regulations and other applicable laws will be made as necessary.

The Board of ITC Limited granted in-principle approval for the demerger of the hotels business under a scheme of arrangement, the company said in a regulatory filing on July 24.

The proposed restructuring would pave the way for the hotel business to operate as a separate entity in the rapidly expanding hospitality industry, focusing on its growth path with an optimal capital structure, as per ET.

While market participants were hoping for a split mirroring the shareholding pattern, but ITC has decided to withhold 40% of the newly-carved-out hotel company and distribute only 60% to shareholders. Markets have reportedly been enthusiastic about the de-merger because the hotels business has been a drag in ITC¡¯s books. Since hotels are a capital-intensive business, it has always delivered significantly lower returns on capital than ITC¡¯s other businesses.

Investors have been excited about the possibility of a demerger so they have the option of staying with ITC¡¯s high-returns businesses, without having to necessarily stay with the hotel business that yields sub-optimal returns.

Also Read: ITC Overtakes Infosys To Become India's Sixth Largest Company

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How Investors Reacted To ITC's Demerger Announcement

Ending months of speculation, India's cigarette-to-hotels conglomerate ITC had in July last week announced that its board has approved the demerger of the hotel business. The move is aimed at unlocking value for 30 lakh shareholders of the multi-bagger stock which has been reaching newer all-time highs in recent weeks and has jumped more than 40% this year.

But the announcement had hurt India's favourite meme stock, as ITC had fallen 4% on the day of the announcement.

But that could have been done even without merger. ITC (parent) could have infused equity into ITC Hotels, instead of letting Hotels borrow debt.

That¡¯s more of a funding issue. Nothing to do with business synergy.

¡ª Gordon Gekko (@GordunGekko) July 24, 2023

Ab nifty ko itc ka kurbani dena padega. 20k door hai

¡ª Baibhav Mishra (@mishra_baibhav) July 24, 2023

#ITC everyone was after its life for demerger. When it's happening stocks is down. Crazy

¡ª Alok Agrawal (@alokagldurg) July 24, 2023

In Parag Parikh's Unit Holders' Meet Rajeev Thakkar said ~ "Facebook stock is like ITC of 2022"
It was trading then below $100.
CMP: $326 & that's 3.5x

We should listen to his justification why he continue to hold Facebook (Meta) https://t.co/7IFJFBz7dR

¡ª Kiran Rajput (@KiranPRajput) July 30, 2023

Also Read: MRF Stock Becomes First To Hit The ?1 Lakh Mark

Reason Behind The Hotel Business Demerger

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The proposed re-organisation through de-merger would ensure the 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.

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, ITC said. In addition, it will unlock the value of the hotel business for the company¡¯s shareholders by providing them with a direct stake in the new entity along with an independent market-driven valuation thereof.

This move by ITC also reinforces the sharper capital allocation strategy put in place in recent years, manifesting in the pivot to an ¡®asset-right¡¯ strategy in the Hotels Business, ITC said.

ITC chairman Sanjiv Puri had said that the proposed demerger of the hotels business is a testament to the company¡¯s commitment to creating sustained value for stakeholders. The 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 reorganization, both ITC and the new entity will continue to benefit from institutional synergies.

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