ITC gets CCI nod for hotel business demerger
The Competition Commission of India (CCI) has given its approval for the demerger of ITC's hotel business into a separate entity. This decision paves the way for ITC Hotels shares to be listed separately on the stock exchange. The National Company Law Tribunal (NCLT) has directed ITC to convene a meeting of shareholders on June 6 to consider and approve the proposed demerger of its hotel business.
ITC's board approved the demerger last year
The proposal to split the hotel business was approved by ITC's board on August 14, 2023. The plan suggests that ITC shareholders will own approximately 60% of the direct stake in ITC Hotels (proportional to their stake in ITC), while the remaining 40% stake will stay with ITC. The demerger plan does not involve any cash consideration. The new entity is expected to be listed within 15 months from the date of approval.
Advisory firms have mixed opinions on ITC's demerger
Proxy advisory firms have expressed mixed views on the proposed demerger and separate listing of the hotels business. InGovern and Stakeholders Empowerment Services (SES) have recommended shareholders vote in favor, whereas Institutional Investor Advisory Services (IiAS) has advised voting against the resolution. IiAS argues that the proposed structure does not offer complete value unlocking for shareholders or significantly reduce any capital support responsibilities for the hotel business from ITC.
SES dismisses concerns over ITC Hotels' valuations
SES, on the other hand, has dismissed concerns over the valuations of ITC Hotels. It stated, "Since ITC Hotels will have mirror shareholding (60% of ITC) and balance will remain with ITC, the valuation is immaterial at this stage." "Further, as ITC Hotels will be listed, value will be through a transparent price discovery mechanism. Hence, no concern is identified in this regard."
ITC's hotel business revenue in Q4FY24
The hotel business, which is the smallest contributor to ITC's portfolio, accounted for only 3 to 5% of its total revenue. Despite this, the segment revenue of the hotel business reached ₹2,989.50 crore during Q4FY24, with a segment EBITDA of ₹1,049.88 crore. The demerger is expected to enhance the return ratios of the FMCG major and unlock value for minority shareholders.
