ITC Hotels Demerger: Shareholder Meeting Set for June 6 to Approve Scheme

ITC share price are in focus after the FMCG giant said a meeting of the ordinary shareholders of the company would be convened on Thursday, June 6^th, 2024, at 10.30 a.m. IST, for approving the proposed demerger of ITC Hotels.

Cigarette-to-FMCG conglomerate ITC will convene a meeting of the company’s ordinary shareholders to approve the proposed scheme of arrangement involving the demerger of ITC Hotels from ITC Limited into a separate listed subsidiary, the company on Wednesday said in an exchange filing. The rationale behind the demerger as cited by the company is that the Hotels Business of ITC has matured over the years and is well poised to chart its own growth path.

The demerger is expected to unlock value through the creation of a pure hotels entity, which would have a stronger business focus aligned to the specific market dynamics in India. The hotel business, analysts say, would operate with an optimal capital structure. It would also have the ability to attract strategic partners focused on the hospitality industry while benefiting from enjoying the strategic synergies with ITC.

Stock exchanges have already given their no-objection to the scheme of arrangement for demerger.

"Further to our letter dated 14^th August, 2023, we write to advise, pursuant to Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, that as directed by the Hon’ble National Company Law Tribunal, Kolkata Bench, vide Order dated 22nd April, 2024 which was received by us today, a Meeting of the Ordinary Shareholders of the Company will be convened on Thursday, 6^th June, 2024 at 10.30 a.m. (IST) through electronic mode for the purpose of considering, and if thought fit, approving the proposed Scheme of Arrangement amongst ITC Limited and ITC Hotels Limited and their respective shareholders and creditors," ITC said.

ITC Chairman & Managing Director Sanjiv Puri told CNBC-TV18 in an exclusive interaction that he does not foresee a significant need for capital raising in the soon-to-be-demerged hotel business. 

ITC's hotels business contributed to nearly 5% of the combined revenue and EBIT over the last decade but more than 20% of the company's CapEx in the past. The EBIT margin for the hotels business for financial year 2023 was at a decade-high of 21%. On January 29 earlier this year, ITC reported a 10.8% year-on-year (YoY) increase in net profit at ₹5,572.1 crore for the third quarter that ended December 31, 2023. The Hotels segment revenue and PBIT surged 18% and 57% YoY, respectively. Segment EBITDA margin climbed 470 bps YoY to 36.2% driven by higher RevPARs (revenue per available rooms), structural cost interventions, and operating leverage.

To recall, ITC approved the Scheme of Arrangement between ITC Ltd and ITC Hotels on August 14, 2023. The scheme suggested the issuance of equity shares by the resultant entity to the shareholders of the demerged counterpart. Specifically, for every 10 shares held in ITC Ltd, shareholders would be entitled to receive 1 share of ITC Hotels Ltd. ITC has stated that 100% of the new hotel business will remain under shareholders of ITC. ITC shareholders will receive 60% of the business while the remaining 40% will be held by ITC Ltd.