ITC DEMERGER
Other than profit booking, the second biggest trouble for investors is the unfavourable demerger ratio for existing shareholders. As part of the demerger plan, ITC will own a 40% stake in the subsidiary which will be called ITC Hotels. The remaining 60% will be owned by the company’s shareholders on a proportionate basis.
Since shareholders are not getting one share against each share they are holding, they are disappointed.
"This 60% of the business will be less than the annual dividend being paid by ITC now. It is not very substantial. It did not turn out to be as big as the market was initially thinking," Amit Kumar Gupta of FinTrekk Capital said.
Once listed, we see a risk there could potentially be some supply pressure from existing shareholders in the case of ITC Hotels, especially from shareholders like BAT. We also note that most analysts currently do not apply a hold-co discount which could potentially be the case once ITC Hotels is separately listed," Jefferies analyst Vivek Maheshwari said.
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.
In the last few years, ITC has adopted an 'asset-right' strategy, with a greater focus on adding properties through management contracts rather than owned hotels. About half of the rooms added in the last 3 years in the standalone entity have been through management contracts.
With a revenue of Rs 2,700 crore, 120 properties and 11,500 rooms in its kitty, ITC is the second-largest hotel chain in India among listed peers.
The hotel business has seen its revenue grow at 12% CAGR over FY20-23. On the back of healthy occupancies (70%) and peak average room rates (ARR), a segmental EBITDA margin expanded to an all-time high of 32.2% in FY23. In the segment, the revenue doubled over FY22, standing at 1.4x of pre-pandemic levels.
Analysts say the hotels business is in a sweet spot, with improving travel activities and no new major room supply in the industry coming on stream leading to high occupancy and ARR.
