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Demerger not to affect synergies between ITC’s other businesses and hotels: analysts

Demerger not to affect synergies between ITC's other businesses and hotels: analysts


Demerger not to affect synergies between ITC’s other businesses and hotels: analysts

The proposed demerger of the hotels division of ITC into a separate entity will not affect synergies with other business lines of the conglomerate, according to analysts.

The board of ITC on Monday accorded in-principle approval to demerge its hotels business into a new entity to be listed pursuant to a scheme of arrangement. Broking firm JM Financial said in a report “synergies between hotels and other ITC businesses like foods should largely remain unaffected”. The firm said that ITC will continue to hold 40 per cent shareholding in the new entity post-demerger and the balance of 60 per cent will be owned by the shareholders.

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This, according to JM Financial, will help the demerged business to raise and deploy its own capital to fund growth of the hotel business and ensure it remains on top amongst peers. This move of demerger will also point towards a sharper capital allocation strategy of ITC, the report said. Another firm Nuvama Research said that ITC has addressed the key investor expectation of demerging the hotels business. With ITC holding 40 per cent of the demerged entity directly and the balance 60 per cent by its shareholders, this will provide synergy and stability in the operations of the two companies, it said.

Nuvama said had ITC had no stake in the proposed demerged entity, the hotels business would become a takeover target with no possibilities of synergy. Prior to 2004, the ownership of the hotels business was split between ITC Limited and ITC Hotels Limited and its subsidiaries. However, the two were merged on April one, 2004 and the hotels business was consolidated under ITC. Nuvama said the structure of the demerged entity implies a balance between decision-making capabilities and stability. The company’s hotels business is operated under six brands – ITC Hotels, Mementos, WelcomHotel, Storri, Fortune and WelcomHeritage. From 2002-03 to 2022-23, the revenues from the hotels business has grown at a CAGR of 11 per cent. On Wednesday, the ITC scrip closed at Rs 472.40 per cent on NSE, registering a rise of 2.18 per cent.

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